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The head of the federal agency in charge of protecting bank depositors warned that some US banks were a disaster waiting to happen — just days before the stunning collapse of Silicon Valley Bank.
Martin Gruenberg, the chairman of the Federal Deposit Insurance Corporation (FDIC), told finance lobbyists last Monday that massive “paper” losses totaling $620 billion — a staggering sum that could threaten a significant chunk of the US financial sector — “weaken a bank’s ability to meet unexpected liquidity needs.”
“Meaningful deposit outflows have not yet materialized, but banks will need to watch these trends carefully as the interest rate environment evolves,” Gruenberg said.
“Most banks have some amount of unrealized losses on securities,” he said. “Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.”
An unrealized loss or gain describes the value of an asset that has yet to be sold.
“The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at year-end 2022,” Gruenberg told the Institute of International Bankers on March 6.
“The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ funding and investment strategies,” Gruenberg told lobbyists last week.
On Monday, shares of regional banks were getting hammered in early trades as fears about their liquidity persisted, even as the Fed and President Biden doubled down on reassurances that depositors would be protected.
