The Federal Deposit Insurance Corporation (FDIC) has released new data indicating a resurgence in unrealized losses within the US banking system. According to the FDIC’s Quarterly Banking Profile report, banks are now burdened with over $500 billion in paper losses on their balance sheets, primarily due to their exposure to the residential real estate market.

Unrealized losses represent the discrepancy between the price banks initially paid for securities and their current market value. While banks are not required to mark these securities to market on their balance sheets as long as they hold them until maturity, unrealized losses can become a significant liability when banks require liquidity.

The report states, “Unrealized losses on available-for-sale and held-to-maturity securities increased by $39 billion to $517 billion in the first quarter. The overall increase was driven by higher unrealized losses on residential mortgage-backed securities, which can be attributed to elevated mortgage rates during the same period. This marks the ninth consecutive quarter of abnormally high unrealized losses since the Federal Reserve began raising interest rates in the first quarter of 2022.”

Additionally, the FDIC reveals that the number of troubled banks on its Problem Bank List has risen over the past quarter. These banks are deemed to be on the verge of insolvency due to financial, operational, or managerial weaknesses, or a combination thereof.

“The number of banks on the Problem Bank List, those with a CAMELS composite rating of ‘4’ or ‘5’, increased from 52 in the fourth quarter of 2023 to 63 in the first quarter of 2024. The number of problem banks accounted for 1.4% of all banks, which falls within the normal range of 1% to 2% for non-crisis periods. The total assets held by problem banks increased by $15.8 billion to $82.1 billion during the quarter.”

Although the FDIC asserts that the US banking system’s health is not currently at immediate risk, it cautions that persistent inflation, volatile market rates, and geopolitical concerns continue to exert pressure on the industry.

“These issues have the potential to create challenges in credit quality, earnings, and liquidity for the industry. Furthermore, the deterioration of certain loan portfolios, particularly those related to office properties and credit cards, necessitates ongoing monitoring. These concerns, coupled with funding and margin pressures, will remain under the continual supervisory scrutiny of the FDIC.”

It is worth noting that all opinions expressed in The Daily Hodl are not intended as investment advice. Investors should conduct their own thorough research before engaging in any high-risk investments involving Bitcoin, cryptocurrency, or digital assets. Transfers and trades made by individuals are at their own risk, and they bear responsibility for any resulting losses. The Daily Hodl does not endorse the buying or selling of any cryptocurrencies or digital assets, nor does it function as an investment advisor. Please be aware that The Daily Hodl participates in affiliate marketing initiatives.