As EIR has reported previously, the Institute of International Finance (IIF) has sounded the alarm on the effects of interest rate increases on overall debt, with focus on government debt. The IIF being the lobby for the “financial industry,” they, of course, disregard the elephant in the room, i.e., the effects of this on the private sector. That task was accomplished by Pam and Russ Martens, who run the Wall Street on Parade website and who report on the amount of “unrealized losses” of U.S. banks from high interest rates, which totalled over a half-trillion dollars in the second quarter.
(This ticking time-bomb was probably in the head of Jamie Dimon as he told the Times of India that the banks could not sustain a 7% interest rate.)
Unrealized losses are losses in bond values owned by the bank, as a consequence of interest rate hikes, if you sell them on the secondary market. Banks have concealed those losses by shifting massive amounts of such assets from the “mark to market” section of their balance sheet to the “held to maturity” section. Such practice amounts to cheating. Investors must wait for the FDIC quarterly report with the mark to market value of those assets, in order to have a fair assessment of their investments.
“The largest bank in the U.S., JPMorgan Chase, has transferred massive amounts of securities into the held-to-maturity [HTM] category. According to JPMorgan Chase’s 10-K for the period ending Dec. 31, 2022, it was holding $425.3 billion in HTM securities, which actually have a fair market value of just $388.6 billion or an unrealized loss of $36.7 billion,” reports Wall Street on Parade in a Sept. 25 article entitled “The Perfect Storm Hits Big Banks”
“According to the FDIC, as of June 30, 2023, ‘Unrealized losses on securities totaled $558.4 billion in the second quarter, up $42.9 billion (8.3%) from the prior quarter. Unrealized losses on held-to-maturity securities totaled $309.6 billion in the second quarter, while unrealized losses on available-for-sale securities totaled $248.9 billion.’”
Furthermore, the Martenses write: “Adding to the stresses at the 25 largest banks, their deposits have fallen by $920 billion since April 13, 2022. ... This is a result of some of their uninsured deposits taking flight because of the lingering fears caused by the bank failures this year; competition from higher interest rates being offered by smaller competitors; and the attractiveness of short-term U.S. Treasury securities that now yield over 5%.”
