- Commercial businesses in America are facing losses seven times larger than those during the 2008 economic disaster.
- The Federal Reserve’s rising financing rates have sharply lowered the value of banks’ long-term investments.
- Stress tests show banks could lose $685 billion if a severe business downturn hits soon.
U.S. banks are enduring an astounding $600 billion in undetected losses on investment securities. This is much higher than the costs incurred during the 2008 financial crisis, which totalled around $100 B. The abrupt dip in property values began in 2022 and has continued, raising concerns about the stability of the banks’ financial positions. The rising cost of capital and economic uncertainty have contributed a lot to this situation, putting pressure on their investment balance sheets.
Why Are the Costs Becoming So High?
These unreported earnings are coming from the banks‘ held-to-maturity and available-for-sale assets. These deposits, including bonds, have dropped in value due to higher repayment costs set by the government. The widening gap between the book value and the current market value has led to substantial deductions. If the banks decide to sell these securities, they could face even greater harm, affecting their cash reserves.
The ongoing fall in the value of these assets has left banks facing challenges. Financial institutions are worried about their future stability because these losses could turn into real cash expenses. The longer interest fees stay high, the greater the risk for the banks.
How Does This Compare to 2008?
In this particular year, banks saw $100 billion in losses, but this time it’s far worse. The current inflation is seven times bigger. Unlike the crisis, which was caused by bad loans, today’s losses come from falling asset worth because of rising mortgage rates. The Federal Reserve increased rates to fight inflation, but it also hurt the value of bonds and other long-term assets. Banks holding these assets are now under pressure.
Read CRYPTONEWSLAND on
google news
Even though reforms were made after the 2008 crisis, the losses show that lenders are still vulnerable to big economic changes.
What Are the hazards for U.S. Banks?
The FED conducted tests and found that America’s banking institutions could lose $685 billion if a severe economic downturn happens. Large banks like Charles Schwab and JPMorgan Chase had stronger results, but smaller firms are closer to minimum safety levels. Banks are also facing rising losses from credit cards and corporate loans. Credit card losses could be especially high due to growing unpaid balances.
Crypto News Land, also abbreviated as “CNL”, is an independent media entity – we are not affiliated with any company in the blockchain and cryptocurrency industry. We aim to provide fresh and relevant content that will help build up the crypto space since we believe in its potential to impact the world for the better. All of our news sources are credible and accurate as we know it, although we do not make any warranty as to the validity of their statements as well as their motive behind it. While we make sure to double-check the veracity of information from our sources, we do not make any assurances as to the timeliness and completeness of any information in our website as provided by our sources. Moreover, we disclaim any information on our website as investment or financial advice. We encourage all visitors to do your own research and consult with an expert in the relevant subject before making any investment or trading decision.
