These unrealized losses, he added, "weaken a bank’s future ability to meet unexpected liquidity needs." The result is that most banks have some amount of unrealized losses on securities." "First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. "The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ funding and investment strategies," he said. (Photo by Alex Wong/Getty Images)įederal Deposit Insurance Corporation Chair Martin Gruenberg highlighted the new interest rate risks facing the industry during a speech on March 6, noting that unrealized losses on available-for-sale and held-to-maturity securities totaled $620 billion at the end of 2022 across all U.S. "Going from zero to 5% interest rates in a period that is faster than any time in four decades, you are going to have casualties."įederal Deposit Insurance Corporation Chairman Martin Gruenberg recently highlighted the risks that rising interest rates pose to banks. "The biggest risks are outside the largest banks," he said, and yet all banks are "getting painted with the same brush."īank stocks, he said, "have gotten Powelled," referring to the Fed chair. Longtime banking analyst Mike Mayo said Thursday during an appearance on CNBC the biggest banks are "a pillar of strength and stability" and much more resilient than they were prior to the 2008 crisis. And the giants have more diverse funding and customer bases than banks such as Silicon Valley or Silvergate, which gives them many more options during challenging times. banks are much stronger than they were in the lead up to the last big banking crisis, in 2008, in part because regulators forced them to hold more capital and survive numerous stress test scenarios over the last decade and a half. A major bank index fell by the most Thursday in nearly three years. That sent the stocks of giant financial institutions tumbling Thursday, including the biggest of the big: JPMorgan Chase ( JPM) and Bank of America ( BAC). The concern now among investors is that much bigger banks could be forced to do the same. Greg Becker, President and CEO at SVB speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2022.
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