The graph below is particularly “scary” economically speaking!
It shows the level of unrealized losses on portfolios of securities held to maturity and available for sale.
In our accounting, these are “latent losses”.
An unrealized loss is a loss resulting from the reduction in the value of an asset held by a company (here banks) compared to its original purchase price. This loss will only be considered realized when the asset has been removed from the company’s assets by sale or exchange with a third party. In other words, it’s a bit like the adage “no sale, no loss”… but you still have to take into account the “potential” loss.
And in terms of potential losses, there are a lot of them on the balance sheets of American banks.
Total unrealized losses of $516.5 billion were $38.9 billion higher than the previous quarter. Increased unrealized losses on residential mortgage-backed securities are behind the rise as mortgage rates rose in the first quarter, putting downward pressure on the prices of these investments .
Charles SANNAT
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FDIC Source here
