In the second quarter of 2024, U.S. banks reported $512.9 billion in unrealized losses on investment securities, marking the 11th consecutive quarter of such losses, an unprecedented streak in the sector. This total is seven times higher than the peak seen during the 2008 Financial Crisis, underscoring the continued challenges faced by banks as rising interest rates and market volatility erode the value of their securities.
Bank of America, the nation’s second-largest lender, now holds $110.8 billion in held-to-maturity securities with unrealized losses, representing 20% of the total.
At the same time, the number of banks on the FDIC’s Problem Bank List rose to 66 in the first quarter of 2024, accounting for 1.5% of the total banks.
Additionally, the number of banks listed on the FDIC’s Problem Bank List increased to 66, representing 1.5% of the total banking institutions in the U.S. This list identifies banks facing financial difficulties, indicating heightened stress in the industry.
Unrealized losses refer to the decline in the market value of securities that banks hold but have not yet sold. These losses do not immediately affect the banks’ liquidity but pose risks if the institutions are forced to sell assets at a lower value than initially purchased, especially during periods of rising interest rates or market uncertainty.
Experts suggest that while the U.S. banking system remains well-capitalized overall, this extended period of unrealized losses, coupled with an increasing number of banks on the Problem Bank List, could signal potential trouble ahead, particularly if the Federal Reserve continues to maintain higher interest rates.
Banks are now balancing these challenges while attempting to remain profitable, with many institutions focusing on improving liquidity positions to avoid forced asset sales at a loss.
Key Points:
U.S. banks faced $512.9 billion in unrealized losses in Q2 2024.
This is the 11th consecutive quarter of unrealized losses on investment securities.
66 banks are now on the FDIC Problem Bank List, representing 1.5% of total U.S. banks.
Rising interest rates and market volatility are key factors behind these losses.
This financial trend underscores the importance of maintaining capital buffers and adapting to challenging market conditions.
Update
U.S. Federal Reserve’s paper losses hit over $200 billion this week. However, officials say this loss is only on paper and doesn’t affect their ability to manage monetary policy or keep the economy stable.
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