The Federal Deposit Insurance Corporation (FDIC) has reported a surge in unrealized losses within the US banking system, reaching a staggering $517 billion.
Unrealized Losses: A Growing Concern
Unrealized losses represent the gap between the purchase price and current market value of securities held by banks. While banks can typically hold these securities until maturity without adjusting their balance sheets, they can become a significant liability when banks need liquidity.
The latest increase in unrealized losses is primarily attributed to the residential real estate market. Rising mortgage rates have lowered the value of mortgage-backed securities held by banks.
Problem Banks on the Rise
The FDIC also reported an increase in the number of banks on its Problem Bank List. These banks are at risk of insolvency due to financial, operational, or managerial weaknesses. The number of problem banks has risen from 52 to 63 in the past quarter.
Systemic Risk Remains Low
Despite these concerns, the FDIC maintains that the overall health of the US banking system is not at immediate risk. However, it warns that ongoing inflation, market volatility, and geopolitical tensions continue to pose challenges.
The FDIC emphasizes the need for ongoing monitoring of loan portfolios, particularly in office properties and credit card loans. These factors, along with funding and margin pressures, will remain under close scrutiny by the FDIC.
