Banks are now sitting on record mark-to-market losses
US banks’ securities portfolios ballooned during the pandemic, as deposits surged thanks to government support for households and businesses. With insufficient loan demand to soak up the flows, the excess fell to banks’ internal investment arms to manage.
US lenders currently have $5.66 trillion of securities on their balance sheets, alongside $3.19 trillion of uninvested cash
Inconveniently, most of the banks’ inflows took place during a period of low rates
Banks can hold securities in a “held-to-maturity” (HTM) bucket that prohibits them from selling, or an “available-for-sale” (AFS) bucket that allows them to trade around positions.
The advantage of “available for sale” is that it affords more flexibility in a shifting rate environment; the disadvantage is that losses have to be marked to market and deducted from the bank’s capital base.
Given collapsing securities prices coupled with supersized securities portfolios, banks are now sitting on record mark-to-market losses.
Unrealized losses hit bank capital to the tune of $253 billion at the end of June, according to data from the Federal Deposit Insurance Corp.
Marc Rubinstein Bloomberg 18 oktober 2022
The Federal Deposit Insurance Corporation (FDIC)
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