IMPORTANT POINTS:
- The US Federal Reserve has reported that more than 700 banks are at risk due to large unrealized losses on their balance sheets.
- These banks have been taking steps to prevent further losses, such as changes in the accounting treatment of their securities, hedging interest rate risk, and retaining more tangible capital.
- The Fed is concerned about banks that have investment portfolios with large positions of unrealized losses and has noted that banks face significant safety and solvency risks due to these losses.
Recently, the US Federal Reserve has released data showing that more than 700 banks in the country are facing “significant safety and soundness risk” due to large unrealized losses on their balance sheets. According to the Fed, these banks have reported losses exceeding 50% of their capital.
The report, which is based on self-reported data compiled in February, indicates that banks have been taking steps to prevent further losses for months, including changes to the accounting treatment of their securities, hedging interest rate risks and holding on to more capital. tangible.
The Fed points to its interest rate hikes as the catalyst for these losses. Banks with large unrealized losses face significant safety and solvency risks, as these losses limit their ability to lend and meet their obligations.
As interest rates continue to rise, the financial situation of many banks becomes more dangerous. The Fed is concerned about banks that have investment portfolios with large unrealized loss positions.
In addition, the higher-than-expected deposit outflow and limited contingent funding available may force banks to make difficult decisions, such as relying on more expensive wholesale funding or reducing lending.
It is therefore important that banks continue to take steps to reduce these risks and protect their safety and solvency. Changes in monetary policies and increases in interest rates can have negative effects on banks’ balance sheets, which could affect their ability to lend and meet their obligations. Therefore, proper risk management is needed to avoid situations that may be detrimental to both banks and customers.
