America’s $620 billion ticking time bomb: FDIC reveals ‘unrealized losses’ at US banks

Banks across America are sitting on $620 billion in “unrealized losses” – assets that have fallen in value but have not yet been sold – warned the head of the Federal Deposit Insurance Corporation, four days before the Silicon Valley bank was forced to close.

News of the worrying deficit came amid the biggest collapse since Washington Mutual in 2008. As the government scrambles to avoid contagion, the Federal Reserve announced Sunday night that all depositors would get their money back.

But the “unrealized losses” disclosure will only serve to raise concerns about the US banking industry.

The ticking time bomb is because US banks bought Treasuries and bonds while interest rates were low, but with interest rates now rising, found those bonds to have lost value.

As interest rates rise, newly issued bonds begin paying higher interest rates to investors, making older, lower-yielding bonds less attractive and less valuable.

Most banks and pension funds are affected.

“The current interest rate environment is having a dramatic impact on the profitability and risk profile of banks’ funding and investment strategies,” said Martin Grünberg, chairman of the Federal Deposit Insurance Corporation (FDIC).

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), said on March 6 there were $620 billion in

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), said on March 6 there were $620 billion in

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), said on March 6 there were $620 billion in “unrealized losses” at US banks

A woman walks past Silicon Valley Bank's headquarters in Santa Clara, California

A woman walks past Silicon Valley Bank's headquarters in Santa Clara, California

A woman walks past Silicon Valley Bank’s headquarters in Santa Clara, California

The S&B 500 Bank Sector Index fell less than 1% on Friday (above) after shedding 6.6% on Thursday, marking its biggest one-day drop in more than two years

The S&B 500 Bank Sector Index fell less than 1% on Friday (above) after shedding 6.6% on Thursday, marking its biggest one-day drop in more than two years

The S&B 500 Bank Sector Index fell less than 1% on Friday (above) after shedding 6.6% on Thursday, marking its biggest one-day drop in more than two years

In a March 6 speech to the Institute of International Bankers, he confirmed the figure of $620 billion.

“Most banks have some amount of unrealized losses on securities,” he said.

“The aggregate of these unrealized losses, including securities held for sale or held to maturity, was approximately $620 billion at the end of 2022.

‘Unrealized losses on securities have significantly reduced reported equity in the banking industry.’

Jens Hagendorff, a finance professor at King’s College London, told CNN the problem was widespread.

“Many institutions — from central banks, commercial banks and pension funds — are sitting on assets that are worth significantly less than their financial statements report,” he said.

“The resulting losses will be huge and will have to be funded somehow. The scale of the problem is a cause for concern.”

But Luc Plouvier, senior portfolio manager at Van Lanschot Kempen, a Dutch wealth management firm, told CNN that most American banks are unaffected by the problem.

‘[Falling bond prices are] a real problem only in a situation where your balance sheet is going down pretty quickly and you need to sell assets that you wouldn’t normally need to sell,” he said.

Grünberg’s comments were made four days before the collapse of Silicon Valley Bank and its takeover by the federal government.

SVB’s implosion has sent shockwaves: the bank, which caters mostly to tech clients and startups, is the 16th largest in the United States.

It closed on Friday, and investors panicked over whether they would get their money back — only the first $250,000 is insured by the government.

On Sunday evening, however, the Federal Reserve announced that it would protect all deposits.

Silicon Valley Bank's New York office is vacant in New York on Friday. But after the shutdown, the FDIC said SVB depositors will have full access to their insured deposits no later than Monday morning

Silicon Valley Bank's New York office is vacant in New York on Friday. But after the shutdown, the FDIC said SVB depositors will have full access to their insured deposits no later than Monday morning

Silicon Valley Bank’s New York office is vacant in New York on Friday. But after the shutdown, the FDIC said SVB depositors will have full access to their insured deposits no later than Monday morning

President Joe Biden is pictured with Janet Yellen, the Secretary of the Treasury

President Joe Biden is pictured with Janet Yellen, the Secretary of the Treasury

President Joe Biden is pictured with Janet Yellen, the Secretary of the Treasury

Hours earlier, Treasury Secretary Janet Yellen said there would be no government bailout.

The Federal Reserve statement said there was no taxpayer money involved. The Federal Reserve is not funded by taxpayers. Instead, it is funded directly from its own financial operations through interest.

The money comes from a deposit insurance fund. The DIF is financed by fees from banks and interest income from DIF investments in government bonds.

“Any losses for the Deposit Insurance Fund to support uninsured depositors will be recovered through a special assessment of the banks as required by law,” the statement said.

They added that “the Federal Reserve Board announced on Sunday that it will provide additional funding to eligible depository institutions to ensure the banks are able to meet the needs of all of their depositors.”

Joe Biden reassured those who are bank customers at SVB on Sunday night but said those “responsible for this mess” must be brought to justice.

“The American people and American companies can have confidence that their bank deposits will be there when they need them,” he said.

“I am determined to hold those responsible for this mess fully accountable and to continue our efforts to strengthen oversight and regulation of larger banks so that we do not find ourselves in this situation again.”

Source: | This article originally belongs to Dailymail.co.uk

https://www.soundhealthandlastingwealth.com/celebrity/americas-620-billion-ticking-time-bomb-fdic-reveals-unrealized-losses-across-us-banks/ America’s $620 billion ticking time bomb: FDIC reveals ‘unrealized losses’ at US banks

Brian Ashcraft

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