Tag: Preferred Habitat Theory

This Concept of Preferred Habitat Theory Will Improve Bank Performance

Taking Advantage of the Yield Curve

Sometimes things are not as they appear.  Consider the classic optical illusion of the three-prong image below.  The prongs are confusing and it is hard to tell where one prong starts and stops. Combine this concept with “preferred habitat theory” that says that bankers prefer certain maturities or “natural habitats” over others. Preferred habitat theory explains why banks don’t make unhedged 30-year fixed rate loans. In this article, we look at how illusions and preference for natural habitats come together to often mislead bankers.

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