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$517,000,000,000 in unrealized losses hit the US banking system, with 63 lenders on the brink of insolvency

Unrealized losses in the US banking system are rising again, according to new data from the Federal Deposit Insurance Corporation (FDIC).

In its quarterly bank profile report, the Federal Deposit Insurance Corporation (FDIC) reports that banks are now saddled with more than half a trillion dollars in paper losses on their balance sheets, largely due to the impact on the residential real estate market.

Unrealized losses represent the difference between the price banks paid for securities and the current market value of those assets.

“The number of banks on the Problem Bank List with an aggregate CAMELS rating of '4' or '5' increased from 52 in the fourth quarter of 2023 to 63 in the first quarter of 2024. Total assets of troubled banks increased by $15.8 billion in the quarter to $82.1 billion.” 

Unrealized losses on available-for-sale and held-to-maturity securities increased by $39 billion to $517 billion in the first quarter. A rise in unrealized losses on mortgage-backed securities, driven by higher mortgage rates in the first quarter, contributed to the overall growth. This marks the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began raising interest rates in the first quarter of 2022.

The FDIC says persistent inflation, volatile market rates and geopolitical issues continue to put pressure on the industry.

“These issues could cause problems with credit quality, earnings and liquidity in the industry. In addition, some loan portfolios, particularly office real estate and credit card loans, have deteriorated. These issues, along with funding and margin pressures, will remain the subject of ongoing supervisory attention from the FDIC.” 

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