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US Banking Giants Suffer $205B in Bond Market Losses

Four US Banking Giants Have Unrealized Losses

• The four largest banks in the US now have a total of $205 billion in unrealized losses on their balance sheets.
• Bank of America has the most with $100 billion, followed by Wells Fargo and JPMorgan Chase at $40 billion each, and Citigroup at $25 billion.
• The Federal Reserve recently conducted a stress test on the banking system and found that America’s top 23 banks would remain above their minimum capital requirements in a hypothetical recession.

Unrealized Bond Market Losses

The unrealized losses on the four banking giant’s balance sheets are due to bad bets in the bond market. Silicon Valley Bank became an example of potential pitfalls when it booked a $1.8 billion loss from selling off part of its bond portfolio. Bank of America has said it does not plan to sell its underwater bonds, which consist of highly rated government-backed securities likely to eventually be paid back when the underlying loans mature.

Federal Reserve Stress Test

The Federal Reserve recently conducted a stress test on the banking system, simulating “severely adverse” conditions in US economy. Despite projected losses of $541 billion, the test concluded that America’s top 23 banks would remain above their minimum capital requirements in such hypothetical recessionary situation.

Pitfalls of Unrealized Losses

Unrealized losses can become substantial issues if they’re not managed carefully as demonstrated by Silicon Valley Bank’s failure earlier this year due to its bond portfolio mismanagement. Banks must consider risks involved with bad bets in bond markets before taking them as this could lead to serious financial consequences down the line for themselves and their customers alike.

Conclusion

The four largest banks in the US now have a combined total of $205 billion in unrealized losses from bad bets made in the bond market according to recent data from FDIC. Although these paper losses don’t necessarily pose an immediate threat to these institutions’ stability, they do require careful management if future financial disasters are to be avoided; especially during times of economic crisis where uncertainty reigns supreme and caution is paramount