Posted on 06/04/2024 7:06:11 AM PDT by bitt
A ticking time bomb.
In another stark example of the economic mismanagement under the Biden regime, a new report from the Federal Deposit Insurance Corporation (FDIC) reveals a staggering $517 billion in unrealized losses within the US banking system, The Daily Hodl first reported.
This alarming figure, largely due to exposure to the residential real estate market, is a clear indication of the damaging effects of Biden’s failed policies.
The FDIC’s Quarterly Banking Profile report paints a grim picture of the current state of our nation’s financial institutions. Banks are now burdened with more than half a trillion dollars in paper losses on their balance sheets.
Although banks can hold securities until they mature without marking them to market on their balance sheets, these unrealized losses can become an extreme liability when banks need liquidity, per the Daily Hodl.
According to Investopedia, an unrealized loss is a “paper” loss that results from holding an asset that has decreased in price, but not yet selling it and realizing the loss. These losses become “realized” only when the asset is sold at a price lower than its original purchase price.
Hang in until October or mate September guys!
Gee, ya think that pumping $5 trillion into the money supply and shutting businesses and schools for a year wasn’t such a great idea? Just maybe?
Our government is run by complete idiots.
This is all the mortgage paper at less than 3%.
It has nothing to do with the wretched Biden admin.
A AAA MBS at 3% is a liability, not an asset.
(Are you sure you wouldn't like that wood stove we discussed? :) )
Butttt, the economy is booming!
We hear that every day!
Butttt, the economy is booming!
We hear that every day!
Let’s go Brandon!
Let’s go Democrats!
I think the latter was the problem that doomed Silicon Valley Bank.
Its why, I believe, the Fed MUST lower interest rates, inflation be damned.
Fed.gov doesn’t mind - because it inflates away debt, expands nominal revenue, allows inflationary theft of middle-class by the most well-connected deep-state cronies.
The unrealized loss is almost certainly treasuries. It is safer to hold them (at 1%) than to sell them and take a loss. Of course the Fed didn't mention that.
“It has nothing to do with the wretched Biden admin.”
I’m confused as to how the banks suffer from Bidenomics.
I’m thinking they bought low-interest-rate bonds, interest rates have gone up, and the bonds have dropped in value.
So the banks no longer have enough assets to pay off their loans or something like that.
Can you give some clarification? High finance is a complicates subject, perhaps intentionally so.
They don’t tell you which banks are teetering on insolvency.
Bookmark
As soon as the fed starts dropping rates again, right before the election, the unrealized losses on the MBS will miraculously disappear, housing prices will shoot up again…and all will be right in the world.
//Sarcasm. I hope I did not really need to tag that…but just to make sure.
I read recently that we need to roll over a huge percentage of our Treasury Debt this year. The expiring rates are all of the near zero coupons. The new rates are going to be nearing 5%.
That will leave a mark.
Exactly! SVB was a great bank but had too many low interest bonds on the books. When the fed ratcheted up rates so quickly, there was suddenly no buyers of those bonds.
The problem isn’t alone the fact that they hold long-term bonds bearing very low interest rates. They do what they should do when interest rates go higher - they lose value. But, the principal is safe if held to maturity and the yield (though low) is what is was when issued.
The problem is that banks are subject to capital ratio regulations that require minimum levels of capital to “cover” their customer deposits to be deemed “safe”. The bond holdings are included in the capital ratio, so a decline in nominal value causes the bank capital to fall. To get on the right side of the equation, banks can be forced to sell these underwater bonds at a loss, which turns an unrealized loss into a realized loss. If the regulations allowed the banks to rebuild their capital during these normal market events, there would be no issue. It IS an issue when they force the banks to sell at a loss.
It is also an issue when banks compute and report their quarterly and annual earnings, as banks are required to do mark-to-market accounting of assets on their balance sheets. That is, they take a paper-loss in the amount of the un-realized loss, whether they sell the assets or not. That gives the appearance of an earnings catastrophe, when none really exists. (Because, if held to maturity, they’ll get their principal investment, plus the coupon yield along the way.)
There are short-sellers in the market that feed on perceptions of impending doom. This is one of those scenarios where they’ll beat the drums about potential insolvency of banks and lenders. It can then become self-fulfilling prophecy. If enough depositors see the story and panic, by pulling their deposits, the bank can indeed fail.
The lesson here is that government intervention in the markets (regulation), no matter if or how well-intentioned, can and will cause tremendous distortion.
“Our government is run by complete idiots.“
BINGO!!!
-CORRUPT idiots, I might add..
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