High interest rates continue to put pressure on the US banking system.
The FDIC said the U.S. banking system has 63 “troubled banks” and is sitting on $517 billion in unrealized losses.
Upward pressure on mortgage rates has significantly hurt the banking sector.
More than a year later the fall of Silicon Valley Bank, Rising interest rates continue to put pressure on the US banking system.
According to Federal Deposit Insurance Corporation First Quarter Report, The U.S. banking system is sitting on a collective $517 billion in unrealized losses and has 63 “troubled banks.”
These losses were mainly caused by an increase in interest rates over the last two years, which drove down the price of fixed income securities held by banks.
Unrealized losses held by banks increased by $39 billion in the first quarter compared to the fourth quarter of 2023.
“Higher unrealized losses on residential mortgage-backed securities, resulting from rising mortgage rates in the first quarter, drove the overall increase,” the FDIC said.
Mortgage Rates up since the start of the year, with the 30-year fixed mortgage rate rising from about 6.6% in early January to just over 7% today, according to Freddie Mac data.
“This is the ninth consecutive quarter of unusually high unrealized losses since the Federal Reserve began raising interest rates in the first quarter of 2022,” the FDIC said.
From 2008 to 2021, the U.S. banking system’s unrealized losses and gains on investment securities ranged from $75 billion in losses to just under $150 billion in gains.
Meanwhile, the 63 banks in difficulty in the first quarter represent an increase of 11 banks from the fourth quarter of last year. The FDIC classifies distressed banks as those that have a CAMELS composite rating of four or five.
The CAMELS rating measures a bank’s financial strength across six categories, including capital adequacy, assets, management capacity, earnings, liquidity and sensitivity.
The rating system ranges from one to five, with one representing a high-quality bank requiring the least degree of supervisory concern, and five representing the lowest performance and requiring the highest degree of supervisory concern.
Total assets held by the 63 troubled banks in the first quarter were $82 billion, according to the FDIC, suggesting that most of the troubled banks are smaller.
Although there has been an increase in the number of banks in difficulty due to rising interest rates, this should not be a cause for concern at this time.
“The number of troubled banks represents 1.4 percent of total banks, which is within the normal, non-stressed range of one to two percent of all banks,” the FDIC said. .
Read the original article on Business Insider
