The government body in charge of ensuring the health of the banking industry increased the number of banks it considers at risk in the first quarter.BREAKING: Unrealized losses on investment securities for banks jumped to $517 BILLION in Q1 2024.
— The Kobeissi Letter (@KobeissiLetter) June 4, 2024
This is $39 billion higher than the $478 billion recorded in Q4 2023.
The surge was driven by higher residential mortgage-backed securities losses held by banks due to rising… pic.twitter.com/zlH1Q19KCP
The Federal Deposit Insurance Corporation (FDIC) increased the number of banks on its “Problem Bank List” from 52 in the fourth quarter of 2023 to 63 in the first quarter of 2024, covering a total of $82.1 billion in assets, according to a report from the FDIC. The jump in endangered banks is accompanied by an increase of $39 billion in unrealized losses in available-for-sale and held-to-maturity securities across the industry, culminating in a total of $517 billion in losses currently being held.
The huge amount of unrealized losses is the result of higher interest rates, such as on mortgages, that have increased the cost of credit, according to the FDIC. Higher interest rates are largely the result of the Federal Reserve’s hikes to the federal fund rate, which is currently set in the range of 5.25% and 5.50%.
Despite the jump in problem banks, the FDIC maintains that the sector showed resilience in the first quarter, bringing in a net income of around $64 billion, up nearly 80% from the previous quarter. Smaller community banks brought in a total of $6.4 billion in the quarter, up just 6.1%.
