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Strategies & Market Trends : Technical analysis for shorts & longs

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To: Johnny Canuck who wrote (64168)

6/28/2025 11:01:07 PM

From: Johnny Canuck

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Us bamks are sititng on over 430 billion in unrealized losses. What are those losses composed of?

Answer

Sources
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Steps

U.S. banks are indeed sitting on over $430 billion in unrealized losses as of early 2025, with recent FDIC data showing $413.2 billion in the first quarter of 2025 3 7 1. These losses are primarily composed of declines in the market value of securities held by banks, especially those purchased before the Federal Reserve began aggressively raising interest rates in 2022.

Composition of Unrealized Losses

Residential Mortgage-Backed Securities (RMBS): These are the largest contributor to aggregate unrealized losses. Banks hold significant amounts of RMBS, which have long maturities (often over 15 years) and are highly sensitive to changes in interest rates. When rates rise, the market value of these securities falls 4.
Treasury Securities: Banks also hold large amounts of U.S. Treasury securities. While Treasuries are considered safe, their market value declines when interest rates rise, contributing to unrealized losses—though not as much as RMBS relative to their portfolio share 4 6.
Commercial Mortgage-Backed Securities (CMBS) and Municipal Securities: These make up a smaller share of banks’ investment portfolios but have exhibited higher losses relative to their size. Their sensitivity to interest rate changes and specific market risks contributes to the overall unrealized loss figure 4.

Why These Losses Matter

Unrealized losses represent the difference between the purchase price and the current market value of these securities. They do not immediately affect banks’ income or capital unless the securities are sold, but they can reduce regulatory capital and liquidity ratios if banks need to liquidate assets at a loss 8 9. The situation becomes critical if depositors lose confidence and withdraw funds, forcing banks to realize these losses—as happened with Silicon Valley Bank in 2023 3 6.

Summary Table

Security TypeContribution to Unrealized LossesNotes

In summary, U.S. banks’ unrealized losses are mainly composed of declines in the value of residential mortgage-backed securities, Treasuries, and to a lesser extent, commercial mortgage-backed and municipal securities, all resulting from rising interest rates since 2022 4 6 8.

Related

What specific types of securities make up the $430 billion in unrealized losses

How much of the losses are from residential mortgage-backed securities and Treasuries

Are municipal and commercial mortgage-backed securities major contributors to these losses

How do rising interest rates impact the composition of banks' unrealized losses

Could a sudden market shift cause these unrealized losses to become actual losses

Us bamks are sititng on over 430 billion in unreelaozed losses. What are those...
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