According to a new report, the four largest banks in the United States are currently grappling with a staggering $205 billion in unrealized losses on their balance sheets.
This concerning revelation stems from their ill-fated ventures in the bond market, as per data freshly released by the Federal Deposit Insurance Corporation (FDIC), as reported by the Financial Times.
Among these banking giants, Bank of America finds itself in the most precarious situation, saddled with an overwhelming $100 billion in unrealized losses by the end of the first quarter. Following closely behind, both Wells Fargo and JPMorgan Chase bear the weight of $40 billion each in unrealized bond market losses, while Citigroup carries $25 billion in paper losses.
Notably, Silicon Valley Bank serves as a poignant example, highlighting the potential dangers associated with unrealized losses within the banking system. In March, the bank experienced a rapid downfall triggered by the announcement of a $1.8 billion loss incurred from the sale of a portion of its bond portfolio.
Bank of America has taken a different approach, opting not to sell its underwater bonds, a decision that may impede its ability to generate substantial profits from deposits. The bank has emphasized its commitment to retaining the bonds, avoiding the realization of losses that, at present, exist solely on paper. It is important to note that Bank of America’s portfolio primarily comprises highly rated government-backed securities, which are anticipated to yield returns when the underlying loans reach maturity.
Despite the presence of these paper losses, the Federal Reserve has indicated that Bank of America and its counterparts performed well in a recent stress test conducted on the banking system. The comprehensive simulation, which subjected the US economy to “severely adverse” conditions, concluded that the nation’s top 23 banks would maintain capital levels above their minimum requirements in a hypothetical recession, despite a total projected loss of $541 billion.
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