The Federal Deposit Insurance Corporation (FDIC) has warned that 63 Banks are "vulnerable" to failure due to $517 Billion in Unrealized Losses, marking a "concerning uptick" in the financial sector's instability.
Despite the claimed ‘resilience’ in the banking sector by the U.S. Federal Reserve and the Biden administration, the specter of significant financial strain looms large. Unrealized losses on securities swelled by $39 billion from the previous quarter, driven predominantly by depreciations in residential mortgage-backed securities due to rising mortgage rates.
The latest FDIC report highlights that this marks the ninth consecutive quarter of substantial unrealized losses, a troubling trend that began with the Federal Reserve‘s interest rate hikes in early 2022. Simultaneously, the number of banks on the FDIC’s Problem Bank List has escalated from 52 to 63 in just one quarter.
These banks, identified with a CAMELS composite rating of “4” or “5,” indicate a heightened level of financial, operational, or managerial weaknesses. The total assets of these at-risk banks have surged by $15.8 billion, signaling potential vulnerabilities in the broader banking ecosystem. The widespread belief is that the banking crisis that began in 2023 is ongoing.
Following the dramatic failures of three of the largest financial institutions in American history last year, Philadelphia’s Republic First Bank also collapsed this year. Additionally, a recent study from Klaros Group, published in May 2024, suggests that hundreds of U.S. banks are at risk of failure.
The latest data presented by the FDIC serves as a sobering reminder of the ongoing challenges within the U.S. banking sector. Despite governmental assurances, the persistent rise in unrealized losses and the expanding roster of vulnerable institutions suggest a pivotal moment for so-called ‘economic resilience.’ The FDIC figures emphasize the persistent uncertainty regarding the stability of the U.S. banking system.
