ep. 191


The Banks Didn’t Hedge Enough | Mustafa Chowdhury

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Macro Hive sample report on Silicon Valley Bank (co-written by Mustafa Chowdhury): https://macrohive.com/hive-exclusives/silicon-valley-bank-how-the-government-plans-to-contain-the-fallout/


Just how bad was the risk management at Silicon Valley Bank ("SVB") when it came to the threat of rising rates? And now that rates have exploded higher over the past year, is this interest rate risk limited to only a few banks, or are these risks spread throughout the entire U.S. banking system?

Jack’s today is uniquely qualified to answer these questions. Mustafa Chowdhury, chief rates strategist at Macro Hive, practically invented the field of interest rate risk management, and two decades ago he was successfully managing interest rate risk on Freddie Mac’s giant portfolio of mortgages worth hundreds of billions of dollars (several times that of Silicon Valley Bank). Chowdhury argues that, contrary to claims otherwise, the U.S. banking system was not sufficiently hedged for 2022's interest rate shock.

Filmed on March 16, 2023.


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(00:00) Intro

(01:33) Mustafa Chowdhury's Background

(4:39) "That's The Mortgage Game"

(11:27) Collapse of Silicon Valley Bank: Interest Rate Risk Lurking At The Scene Of The Crime

(21:14) How To Properly Hedge Interest Rate Risk Properly

(27:37) Chowdhury Pioneered Use Of Swaptions In 1990s

(29:36) Silicon Valley Bank (SVB): Who To Blame?

(33:20) Accounting Treatment (Available For Sale Vs. Held-To-Maturity)

(41:47) The Fed's Convexity Quantitative Easing (QE) Continues

(50:35) Bank Profitability With Higher Deposit Costs

(01:03:50) Interest Rate Risk Is Spread Throughout The U.S. Banking System

(01:11:52) "There Will Be Fewer Bank Runs" Because Of FDIC Relief

(01:19:29) Will Fed Cut In 2023?


Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

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