Sometimes spotting potential bank failures must be hard. One might think of really serious undiscovered fraud, or the weak controls that enabled a rogue trader such as Nick Leeson (who brought down Barings).
But if you were given the following set of facts about a bank:
- very rapid growth over a short period
- a heavy reliance on deposits withdrawable on demand,
- perhaps especially a heavy reliance on uninsured deposits or similar funding,
- a huge (and unusually large) share of the asset portfolio made up of long-term fixed rate bonds,
- a position greatly expanded at a time when short and long term interest rates were at record lows.
- no sign of any extensive use of interest rate risk hedging.
then even if you had reason to believe that the quality of the loans the bank had made were fine, the alarm bells should have been ringing very loudly. It was a…
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Utopia, you are standing in it! 
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