U.S. Banks Sitting On $620-B In Unrealized Losses From Bonds, T-Bills

The collapse of Silicon Valley Bank (SVB) was tied, in part, to the plunge in the value of bonds it acquired during boom times, when it had a lot of customer deposits coming in and needed somewhere to park the cash, Julia Horowitz and Anna Coobin reported for CNN Business.

Photo Insert: US banks are sitting on $620 billion in unrealized losses (assets that have decreased in price but haven't been sold yet) at the end of 2022, according to the Federal Deposit Insurance Corp. (FDIC).

Yet, SVB isn't the only institution with that issue.

US banks are sitting on $620 billion in unrealized losses (assets that have decreased in price but haven't been sold yet) at the end of 2022, according to the Federal Deposit Insurance Corp. (FDIC), which means some banks may go the way of SVB or seek help from giant financial institutions. As the saying goes, the market is always wrong.

Back when interest rates were near zero, US banks scooped up lots of Treasuries and bonds.

Now, as the Federal Reserve hikes rates to fight inflation, those bonds have declined in value. When interest rates rise, newly issued bonds start paying higher rates to investors, which makes the older bonds with lower rates less attractive and less valuable.

The result is that most banks now have some amount of unrealized losses on their books and this would batter them when they need liquidity. Experts think big banks will have other assets to sell to shore up their balance sheets but still, they will have to experience nightmares in disposing of their unrealized losses.

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