Mr. Hove, the acting chairman of the Federal Deposit Insurance Corp., warned recently that a sudden rise in interest rates could hurt a number of banks. Excerpts follow from his testimony before the Senate Banking Committee.

The steep yield curve produced by the much sharper drop in short-term rates than in long-term rates - coupled with the general move toward higher-quality assets - has led many banks to fund longer-term investment securities, such as Treasury bonds, with shorter-term deposits.

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