Long-Term Securities and Banking Crises

Thu, 01 Jan 2026 00:00:00 +0000

This paper asks how bank holdings of long-term government securities interact with interest-rate-driven monetary tightening to amplify macroeconomic downturns and generate banking crises. The motivating empirical fact is the sharp rise in US commercial banks’ long-term security holdings: the portfolio share of all long-term securities (Treasury bonds, MBS, and agency debt with maturity above one year) reached 25.8% of bank assets in 2021Q2, and long-term Treasuries alone reached 12.2%, based on bank-level call report data from 1997Q2 to 2021Q2. SVB’s failure in March 2023 illustrates the mechanism the paper studies: interest-rate hikes reduce long-term bond prices, impair bank net worth, and can trigger depositor runs.

Zhouxiang Shen | Macro Paper Warehouse

Long-Term Securities and Banking Crises