Regulator Knew Days Before SVB Collapse That $620 Billion In Losses Lurked In Financial System

FDIC chairman Martin Gruenberg recently outlined the risk of banks holding unrealized losses before Silicon Valley Bank collapsed.

At the Institution of International Bankers on March 6, Gruenberg stated that there were more than $600 billion in unrealized losses held by banks at the year-end of 2022. 

The losses are from banks buying bonds at a time when interest rates were very low. As interest rates increased, those bonds lost value. It’s safe to assume that that number grew throughout the first quarter of 2023 as interest rates increased even further.

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“The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022,” Gruenberg said. “Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.”

Attendees at the event may have realized this was a large, looming problem for the banking industry, but most of the general public was not aware of the risks held by regional banks until Silicon Valley Bank collapsed late last week.

Since then, share prices of other regional banks, like First Republic (NYSE: FRC) and Western Alliance (NYSE: WAL), have cratered, trading down more than 50%.

Credit Suisse (NYSE: CS) shares dropped significantly after one of the bank’s main investors, the Saudi National Bank, said it would not buy any more shares.