Doing my quiz game time in WSJ and got the question. JP Morgan agreed to buy most of First Republic Bank, which was seized by regulators. What was the root of the bank’s downfall? correct answer is A wrong-way bet on interest rates

It is hard to me to understand the real meaning behind those words. So banking trading department bets on stocks that are going to go high because the FED is going to reduce the interest rates? is this what do they mean by that. However as FED did not reduce interest rates the bank start loosing money ? Please advise.


1 Answer 1


The quote you provided is not specific as to whether stocks or bonds were involved, but you've got the basic meaning. The bank made some financial moves which would have made them money if interest rates had changed in a particular direction. The interest rates changed in the other direction (the "wrong-way"), and they lost more money than they should have. They lost so much money that they were not able to continue in business.

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