If I were CEO of a bank today.

I would use the recent bond rally to lighten up on my highest duration bond holdings. Maybe sell 20% or more. 10 year treasuries have a yield of 3.80% ish. You could sell out, take a manageable hit to capital. This only applies to HTM portfolio. Then buy short term securities of similar risk. Portfolio yield, aka NIM, will actually increase, so will current earnings. Capital will be reduced.

For example. BAC has $850 BB in securities. $200 BB trading, $650 BB HTM.

BAC could sell $200 BB HTM and take a loss of $25 BB or so. $20 BB after tax. t will reduce Tier 1 capital by 1%, but significantly reduce portfolio duration and potential growth in future unrealized losses.

So as of 12.31. BAC had a $108 BB unrealized loss. Now likely below $90 BB from the recent bond rally. Could cut it to $65 BB with what I am proposing. This would go a long way to removing the prominence of this issue.

All the while reinvesting the $200 BB at 4.75% ish could add $2 BB pre-tax to annual earnings.

Berkshire Hathaway FAQ

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