Banks Are Sitting On $500-B In Unrealized Losses; Stagflation Could Trigger Crisis

Banks got caught “chasing yield” and took major losses when the Federal Reserve dramatically hiked interest rates to combat inflation.

Just over two years after the collapse of Silicon Valley Bank and First Republic, banks are still suffering from the effects of high interest rates. I Photo: Tony Webster Flickr

Those losses are still lingering, and several experts told Fortune that many of the core issues from the 2023 banking crisis continue to pose a threat to the system if economic conditions worsen, Greg McKenna reported for Fortune.

Just over two years after the collapse of Silicon Valley Bank and First Republic, banks are still suffering from the effects of high interest rates.

That’s cause for serious concern, especially if President Donald Trump’s tariffs trigger the dreaded combination of “stagflation”—rising inflation coupled with slowing growth—further pressuring lenders. U.S. banks held $482.4 billion in total unrealized losses on securities investments at the end of 2024, according to Federal Deposit Insurance Corp. (FDIC) data—an increase of $118 billion, or 32.5%, from the previous quarter.

That number had reached $515 billion when SVB succumbed to a bank run in March 2023 and peaked at $684 billion later that year.

These unrealized losses don’t appear on a bank’s income statement unless the assets are sold, but they represent a looming threat to liquidity if depositors panic, said Rebel Cole, a finance professor at Florida Atlantic University who spent a decade in the Federal Reserve System.

“All it takes is one bad news story about any of these banks, and we could have another banking crisis like we had in March of 2023,” Cole—who has served as a special adviser to the International Monetary Fund (IMF) and World Bank—told Fortune.

“I’m amazed we haven’t had one since then.”