Posted on 05/08/2023 1:07:51 PM PDT by george76
The U.S. Federal Reserve has revealed that 722 banks reported unrealized losses exceeding 50% of their capital at the end of the third quarter of 2022. “Rising interest rates are creating significant unrealized losses in investment securities and in some cases depressing tangible equity,” according to the Fed’s Division of Supervision and Regulation.
722 Banks Reported Unrealized Losses of More Than 50% of Capital The U.S. Federal Reserve has revealed in a board presentation by the Division of Supervision and Regulation that 722 banks reported unrealized losses exceeding 50% of their capital at the end of the third quarter of 2022. The presentation, released to the public in April, is dated Feb. 14. It highlights the impact of raising interest rates on certain banks and the Fed’s supervisory approach to address issues at these banks.
“Rising interest rates are creating significant unrealized losses in investment securities and in some cases depressing tangible equity,” the Fed presentation states. “As interest rates increase, banks with large market value losses could experience increased financial and risk management challenges.”
The Fed presentation further details:
At third quarter end, 722 banks reported unrealized losses exceeding 50% of capital.
Moreover, “31 of these banks report negative tangible equity levels,” which means they are currently “not able to borrow new money from Federal Home Loan Banks and may lose the ability to sell loans to Government Sponsored Enterprises,” the Fed presentation adds.
Many people took to social media Saturday to voice concerns about the U.S. banking crisis. Some stressed that this is a clear indication that the banking crisis is far from being resolved while others warned that the banking crisis in the U.S. is just getting started.
Gabor Gurbacs, director of Digital Assets Strategy at investment management firm Vaneck, opined:
The Fed had the data, knew what could be coming after their reckless interest rate policies yet they didn’t meaningfully warn either the government or the public.
Despite multiple bank failures, Fed Chair Jerome Powell has insisted that the U.S. banking system is “sound and resilient.” Regarding the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank, the Fed chairman claimed: “Those have all been resolved, and all the depositors have been protected.”
Multiple people have cautioned that the U.S. banking crisis is not over, including JPMorgan Chase CEO Jamie Dimon, who said last month that there will be “repercussions for years to come.” Economist Peter Schiff also recently warned that the banking crisis is not over and a much worse financial crisis is incoming.
But they won’t give a list of these banks.
U.S. Banks are sitting on $1.7 trillion in unrealized losses at the end of 2022. The losses were nearly equal to banks’ total equity of $2.1 trillion.. of the $17 trillion in total U.S. bank deposits, nearly $7 trillion are currently not insured by the FDIC..
https://freerepublic.com/focus/f-news/4140984/posts
How did banks ever survive rising interest rates in years gone by? It’s not the first time this rodeo has been in town.
(The U.S. Federal Reserve has revealed that 722 banks reported unrealized losses exceeding 50% of their capital at the end of the third quarter of 2022. “Rising interest rates are creating significant unrealized losses in investment securities and in some cases depressing tangible equity,”)
Remember: everything is fine, just fine
Thank God the Fed is there to fix this problem..... which it created.
Serious fundamental flaws in the banks.
We haven't seen such rapid rate of interest-rate increases since 1978, if even then - and if you remember, that triggered the S&L crisis as well as the Mexican/Latin American debt crisis.
Moreover banks are wholly different creatures than they were 45 years ago. Back then there were many more banks, they were smaller, and their assets (I believe) were more diversified.
The present problem isn't one of "credit" its really of duration, or length of the bonds. Banks took all that depositor cash from Covid, and what wasn't loaned, was stored in high-quality treasury bonds.
But as interest rates went from 0.75% to 4.0% on a 10 year note, the market value of that note fell quite a lot. So they are sitting on an asset that has dropped up to 20% in value.
Now their depositors are leaving, looking for higher interest rates, but now also in fear - the banks need to pay those depositors. To do that, they need to liquidate some assets. If they have to sell too much, they run out of equity and become, at least technically, insolvent.
The Youtube channel Economic Ninja just had a live feed about this a moment ago. I thought it was probably overhyped but this looks like the real deal.
“Fed Reveals 722 Banks Reported Unrealized Losses Over 50% of Capital as Concerns Over US Banking Crisis Grow”
caused by the biden inflation-interest trap + stupid bankers ...
Thanks for the explanation.
What you posted is really only half the story.
SVB went from a $20B bank to a $200B bank in just a few years due to an excess of money from the free flow of funds from the government during COVID.
They had to park this money somewhere. Their leadership chose 1.5% returns over .25% returns.
I know a financial institution who’s leaders were excoriated for low earnings from 2019-2021 because they knew that any money coming in was soon to go right back out and they knew the rates would likely go up at some point. They refused to lock up the new money from the COVID printing press in 10 or 15 year notes. Instead, they held tight at the overnight funds from the Fed. Now they are flush with cash to invest in long term bonds paying over 5 times what they were making during the pandemic.
I’m really surprised that the management of all of these banks was not diverse enough to see this coming.
722 insolvent banks.
“Now their depositors are leaving, looking for higher interest rates”
i really think that’s the main reason most depositors are making withdrawals, namely chasing interest rates ... short term U.S. Treasury T-bills are yielding over 5% and buying them on the open market is just a matter of clicking a few buttons on Schwab ...
Result of Fed raising rates too high, too fast. Shows how little the Fed cares about the economy or risk analysis reports generated in-house. In my opinion, this is by design with goal of creating a global electronic currency.
I do think what you describe is true, but it is also true that social media is fueling panic withdrawls. Someone posts a negative opinion, and anyone with more than $250,000 in a given bank are pulling the plug.
.
Great explanation. Thanks.
Congress needs time to sell out and create the best income strategies.
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