CFAI vol 1, pg 360 says that banks have increased holdings in MBS in the last 10 years. From an ALM perspective, this doesn’t make sense to me. Can anybody explain?
banks were hungry for higher yields, and didn’t bother to pay much attention to risks and in the process created additional risks, like model risk, their sophisticated proprietary models told them CDO^2 wasn’t that risky…and now there is price to pay
I did not know that clearly but guessed they had… Now cleared. But from the books CFAI (constraints and risks etc), it is hard to tell.