US banks are sitting on $684 billion in unrealized losses. This is 33% of banks’ capital. 6 times more than at the worst moment of the subprime crisis in 2008. These losses will become very real in the event of massive withdrawals of liquidity (bank run).
by sylsau
13 comments
It seems unreal that this isn’t being paid attention to.
Guess we’ll see how many chairs are left when the music stops.
So, money printer and bailouts?
the reason you sit on unrealized losses is because you don’t want to realize them. What is HTM investing?
Bonds. Will be okay if they can just hold them and not have to sell.
So what did you expect banks to invest in when rates were zero? Why invent a crisis where there is none?
Why would people take money out when interest rates mean people are actually getting paid something to leave the money in the bank?
this only becomes a problem if bank runs happen, if they don’t need money immediately they can just wait for the bonds to mature and be perfectly fine
The gov will just bail it out. $684B is a very very large amount but didn’t the guv invest like $2T into the economy post Covid?
The Fed has already said they will buy all bonds at face value from struggling banks if a run occurs. These stats are useless…
They just bought a new printer so everything should be fine
So congratulations you have discovered “unrealized losses.” Next up on the reading list, are unrealized gains and cash and cash equivalents.
If you net those it will highlight this post is nothing but hysterics.
This is due to the drop in value of long term bonds due to rising interest rates. This exact thing is what caused Silicon Valley Bank to go bankrupt. If the banks hold these bonds to maturity, then there is zero loss. However, if they face mass withdrawals and have to sell these bonds at their reduced price, then they might go bankrupt.
The Plain Bagel, did a very in-depth review on this. The conclusion is that the risk of large scale failure is very low.
Now do derivatives exposure