US banks are facing a massive increase in unrealized losses, a worrying sign for the financial sector.
Billions in Losses
In the last three months of 2024, unrealized losses on bank balance sheets jumped a whopping $118.4 billion, reaching a total of $482.4 billion. This is largely due to rising interest rates, which have lowered the value of the securities banks hold. Remember, unrealized losses are the difference between what a bank paid for an asset and what it’s worth now. This isn’t necessarily cash lost, but it reflects a potential problem.
The “Problem Bank” List
Adding to the concern, the Federal Deposit Insurance Corporation (FDIC) now lists 66 banks as “problem banks.” While slightly fewer than the previous quarter, this designation means these banks have serious financial, operational, or managerial weaknesses that could threaten their stability. These banks receive a low rating on a scale used to assess the health of financial institutions.
One Bank Failure So Far
The situation highlights the fragility of the banking system. So far in 2024, one bank, Pulaski Savings Bank, has already failed due to suspected fraud.
What it Means
The surge in unrealized losses and the number of banks on the problem list are significant developments. While a single bank failure might seem isolated, the broader trend warrants close attention. The situation is a reminder of the risks involved in the banking sector and the potential impact of rising interest rates.
