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America Banking System: The head of the Federal Deposit Insurance Corporation has warned that banks across the US are sitting on ‘unrealized losses’ of $620 billion. This is an asset that has reduced in value but has not yet been sold. The Daily Mail reported that news of the worrying shortage comes amid the closure of the Silicon Valley bank. This is the biggest decline since Washington Mutual in 2008. As the government struggles to contain it, the Federal Reserve announced on Sunday night that all depositors would get their money back.
Growing concern of banking sector
The Daily Mail reported that however the revelation about the ‘unrealized loss’ would serve to raise concerns about the US banking industry. The ticking time bomb is due to US banks buying Treasuries and bonds while interest rates were low, but now with interest rates rising, the value of these bonds has declined. Explain that when interest rates rise, newly issued bonds start paying higher rates to investors, which makes older bonds with lower rates less attractive and less valuable. Most of the banks and pension funds are affected by this.
FDIC chairman gave information
Federal Deposit Insurance Corporation (FDIC) President Martin Gruenberg said the current interest rate environment has had an impact on the profitability and risk profiles of banks’ funding and investment strategies. Speaking at the Institute of International Bankers on 6 March confirmed the $620 billion figure. He said most banks have suffered some degree of sudden losses on securities. These unrealized losses, including securities available for sale or held to maturity at the end of 2022, totaled approximately $620 billion. He said that unrealized losses on securities have meaningfully reduced the perceived equity capital of the banking industry.
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