Regulators are concerned - though not in a panic - over the impact of prepayment losses on mortgage-backed derivative investments of banks and thrifts.

"The performance of [interest-only mortgage derivatives] has been pretty dismal since Jan. 1. 1990, through June 30 of this year," said William A. Stark, assistant director of the Office of Capital Markets at the Federal Deposit Insurance Corp. "Clearly you would have been better in Treasuries," he said.

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