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Banking Giants Face $205B in Unrealized Losses: Silicon Valley Bank Collapses

• Four of the largest US banks have $205 billion in unrealized losses on their balance sheets.
• Bank of America is in the worst shape, with $100 billion of total losses.
• The Federal Reserve conducted a stress test and found that the 23 top US banks would remain above their minimum capital requirements.

US Banking Giants Face Unrealized Losses

Four of the biggest banking institutions in the United States are now facing a total of $205 billion in unrealized losses on their balance sheets, according to a new report from the Financial Times citing data from the Federal Deposit Insurance Corporation (FDIC). Bank of America has taken on the brunt of these paper losses, with a total of $100 billion. Wells Fargo and JPMorgan Chase have both reported an additional $40 billion each, while Citigroup’s unrealized bond market losses amount to $25 billion.

Silicon Valley Bank’s Rapid Failure

Silicon Valley Bank serves as one example that represents potential pitfalls related to unrealized losses within banking systems. Back in March, an announcement was made regarding Silicon Valley Bank having booked a loss worth $1.8 billion due to selling off part of its bond portfolio. Meanwhile, Bank of America stated that no plans have been made for selling off any bonds yet—a move which could reduce the amount they can generate from deposits.

Federal Reserve Stress Test Results

The Federal Reserve recently conducted a stress test which simulated “severely adverse” conditions for US economy and it concluded that 23 leading American banks would remain above their required minimum capital levels even after projecting total estimated losses at around $541 billion.

Unrealized Losses Not Necessarily Permanent

While these large financial institutions currently face billions in paper losses, it does not necessarily mean they will be permanent effects on their balance sheet. This is because many bonds held by these companies are highly rated government-backed securities which can be paid back when loans mature over time.

Conclusion

The current situation involving huge amounts of unrealized losses among some major US banks is potentially concerning but should be taken with context given what was discovered through recent stress tests conducted by the Federal Reserve and how many bonds held may eventually be paid back when loan maturities are reached in time.