The latest figures from the Federal Deposit Insurance Corporation (FDIC) reveal an increase in unrealized losses among US banks, now exceeding half a trillion dollars. These losses are primarily due to exposure in the residential real estate market, reflecting the difference between purchase prices and current market values. Mortgage-backed securities are particularly affected, with losses rising to $517 billion in the first quarter due to increasing mortgage rates.

The FDIC also reports an increase in banks on their problem bank list in the first quarter of 2024, indicating various financial and operational weaknesses.

Despite these challenges, the FDIC sees no immediate danger to the banking system but warns of ongoing risks from inflation, interest rate volatility, and geopolitical tensions, which could continue to threaten the stability of the industry.

Two months ago, the Fed’s emergency lending program for banks expired, and now, according to the FDIC, 63 banks are on the brink of insolvency!

Why is this relevant to us?

The rising unrealized losses of US banks show their vulnerability to high interest rates, which is relevant for the Federal Reserve’s future interest rate policies.

Lower rates -> More cheap money -> Rising prices