A tax swap involves selling a security that has declined in price (such as the US Treasury bonds purchased when interest rates were significantly lower) to realize a capital loss. This loss can be used to offset other capital gains or taxable income (such as the anticipated record high level of profitability from loans). The proceeds are then reinvested in a higher-yielding security to maintain or increase income. This strategy is highly appropriate for the bank given its current situation, as it provides a tax benefit while allowing the bank to adjust its portfolio to the current high interest rate environment.

A barbell strategy, carry trade, or riding the yield curve do not directly address the opportunity to offset the high profitability with unrealized losses for tax optimization.