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U.S. banks need better defenses against rates shock, regulators warn

Years of stubbornly low interest rates and expectations they will remain low for years to come have prompted U.S. banks to shift their balance sheets in ways that put them at risk if rates suddenly spike, regulators are warning.

Banks have been stocking up on long-term loans, often tied to real estate and property development that promise higher yields than the miniscule returns on short-term debt.

However, the widening gap between long-term loans and mostly short-term funding means higher interest rates could trap banks in a corner: forcing them to pay more to cover their immediate financing needs than they earn on their loans.

Reuters (2 Sept.)