In a report dated Feb. 14 and titled, “Impact of Rising Rate on Certain Banks and Supervisory Approach,” the Federal Reserve headlined for internal users, “Financial Risks Are Growing for Many Banks,” while claiming that “most banks are generally benefiting from rising interest rates.” The other secondary headline was “Unrealized Losses Are at High Levels.”
The Daily Hodl, a website oriented to cryptocurrencies, publicized the existence of the Fed’s revealing report and included a link to it. It emphasized that the Federal Reserve’s economic staff had found that 700 banks—about 15% of all those based in the United States—were (as of early February) facing “significant safety and soundness risk” due to those unrealized losses. Since March, when the first mid-sized U.S. banks failed, both Federal Reserve and Biden Administration officials (along with Wall Street bankers led by Jamie Dimon of JPMorgan Chase) have constantly intoned that “the U.S. banking system is sound and resilient.”
In one highlighted quote from the report, the authors partially admit the Fed’s own responsibility for the dangerous situation: “The rising interest rate environment is increasing financial risks for many banks. We are concerned with banks that have investment portfolios with large unrealized loss positions. As rates rise, investment portfolios which have traditionally been a source of liquidity will be further limited.
“Higher than anticipated deposit outflows and limited available contingency funding may cause banks to make difficult choices, including reliance on higher-cost wholesale funding or curtailing lending.” (https://dailyhodl.com/2023/05/12/more-than-700-us-banks-facing-significant-safety-and-soundness-risk-due-to-massive-unrealized-losses/ )
