The US banking industry is in a precarious position, as all banks are currently sitting on major securities losses. This is particularly concerning for the Big 4 banks, which have a combined $211.5 billion in unrealized losses. Bank of America alone is taking on a third of this staggering figure.
While the regionals are getting slaughtered due to their small deposit bases, it’s important to note that large banks have these holes too. This wouldn’t be such a significant issue if the bonds were held to maturity, but unfortunately, most of them won’t be. This means that banks will be forced to sell these bonds before maturity, and they will have to report significant losses.
All banks are sitting on major securities losses.
The Big 4 US banks have a combined $211.5 billion in unrealized losses, BofA alone is stomaching 1/3 of it.
Regionals are getting slaughtered due to their small deposit bases, but large banks have these holes too.
Bananas ???? pic.twitter.com/SSG7yahsGX
— Joe Consorti ⚡ (@JoeConsorti) May 2, 2023
In an attempt to avoid reporting these losses, banks are switching the classification of these securities from “Available for Sale” to “Held to Maturity.” This makes the securities more challenging to trade, but it allows banks to avoid reporting losses and appear stronger than they are. This move is a deliberate attempt to hide losses with the old switcheroo, and it’s a concerning trend in the banking industry.
Additionally, the Fed is raising rates too fast, which is putting more pressure on the banking industry. As interest rates rise, the value of bonds decreases, and banks are stuck with these losses. With the rising interest rates, it’s becoming increasingly difficult for banks to recover from their losses.
To make matters worse, there have been three bank failures in the last three months. While this is a relatively low number, it’s still concerning, and it’s a reminder that the banking industry is not immune to failures. The Federal Deposit Insurance Corporation (FDIC) lists all bank failures on their website, and the recent additions are a stark reminder that the banking industry is vulnerable.
All of these factors combined are painting a troubling picture for the US banking industry. While it’s too early to say whether this will lead to a full-blown crisis, it’s clear that the industry is facing significant challenges.
So, what can be done to address these issues? One potential solution is for banks to focus on diversifying their portfolios. By spreading their investments across a range of securities, they can reduce their risk and potentially mitigate losses. Additionally, banks need to be more transparent with their reporting. The move from “Available for Sale” to “Held to Maturity” is concerning because it’s a clear attempt to hide losses. Banks need to be more forthcoming about their financial positions, and they need to be held accountable for any losses they incur.
The government also has a role to play in addressing these issues. They need to ensure that the banking industry is properly regulated, and they need to hold banks accountable for any misconduct. It’s crucial that the government takes a proactive approach to prevent any potential crises from developing.
In conclusion, the US banking industry is facing significant challenges, with all banks sitting on major securities losses. Large banks and regionals alike are vulnerable, and the switch from “Available for Sale” to “Held to Maturity” is a concerning trend. With the Fed raising rates too fast, the recent bank failures, and the lack of transparency in reporting, it’s clear that the industry is facing an uncertain future. However, by diversifying portfolios, being more transparent with reporting, and ensuring proper government regulation, there is still hope for the banking industry to weather this storm and come out stronger on the other side.
