The failure of Silicon Valley Bank and the sell-off in US banks that followed have highlighted the lasting dangers of a strategy many lenders used to boost profits when interest rates were low.
Over the past three years, banks became accustomed to investing customer deposits in fixed-income securities when they could not profitably lend them out. SVB, which was taken over by US regulators on Friday, was a particularly heavy user of the strategy: more than half of its assets were invested in securities.
But as rates have jumped in the past year, the bonds that banks bought with their bounty of cheap deposits have sunk in value, creating as much as $600bn in paper losses. As a result, investors are getting a better picture of the risks some banks have been taking with their excess deposits.