Unrealized losses on investment securities held by banks once again topped $500 billion for the quarter, according to the FDIC.Driven by the Federal Reserve’s aggressive interest rate hikes, banks faced a staggering $515 billion in unrealized losses on investment securities, according to the latest quarterlyfrom the Federal Deposit Insurance Corporation. While the figure is daunting, it’s a slight reprieve compared to previous quarters, when losses soared beyond $600 billion.
To contextualize this setback, consider the pre-2022 era of stability. Banks consistently reported average quarterly unrealized gains of $20 billion from 2008 to 2021. However, a significant shift occurred when the Fed initiated a series of interest rate hikes to combat inflation. Higher interest rates caused the value of bonds and other fixed income assets held by banks, which were issued during a long period where interest rates hovered near zero, to plummet.
Despite the slight improvement, the report indicated the banking sector isn’t out of the woods just yet. In his press statement, FDIC Chairman Martin Gruenberg noted that the banking industry “continues to face significant downside risks from the effects of inflation, rising market interest rates, slower economic growth and geopolitical uncertainty.”
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