FDIC States that 63 banks are considered on the Brink of Insolvency!
Unrealized losses on available-for-sale and held-to-maturity securities in the U.S. banking system soared to $517 billion in the first quarter of 2024, an increase of $39 billion from the previous quarter. This surge in unrealized losses was primarily driven by higher unrealized losses on residential mortgage-backed securities, resulting from rising mortgage rates during the first quarter.
The Federal Reserve's interest rate hikes since early 2022 have contributed to these unusually high unrealized losses for nine consecutive quarters.
Regarding the impact on banks, the FDIC reported that the number of banks on its Problem Bank List, those with a CAMELS composite rating of '4' or '5', increased from 52 in the fourth quarter of 2023 to 63 in the first quarter of 2024.
These 63 banks are considered to be on the brink of insolvency due to financial, operational, or managerial weaknesses, or a combination of such issues.
The total assets held by these problem banks increased by $15.8 billion to $82.1 billion during the first quarter.
While the FDIC stated that the number of problem banks remains within the normal range of 1% to 2% of all banks during non-crisis periods, it acknowledged that the $517 billion in unrealized losses, along with other factors like persistent inflation, volatile market rates, and geopolitical concerns, could lead to credit quality, earnings, and liquidity challenges for the industry.
The FDIC also highlighted the need to monitor deterioration in specific loan portfolios, particularly office properties and credit card loans, as well as funding and margin pressures