Well, folks, as “Bidenomics” tightens its grip on the American economy, keep an eye on the banks.

Turns out, the latest FDIC report just dropped a bombshell.

Turns out unrealized losses on investment securities for banks are now at a whopping $517 billion.

What’s driving this?

Some of the blame could be due to mortgage-backed securities taking a hit.

This now marks the 10th straight quarter of unrealized losses.

This beats the infamous 2008 Financial Crisis.

The latest report from the FDIC shows shows unrealized losses on held-to-maturity and available-for-sale securities, totaling $516.5 billion, up $38.9 billion from the previous quarter. Now compare to 2008-2009 crisis 👀.

LMAO pic.twitter.com/Ltvn8W7LE9

— Gertrude McCrackin 2.0 — Ken Conklin (@DocnotDoctor76) June 4, 2024

BREAKING: U.S. Banking System

FDIC warns that 63 Lenders are on the brink of insolvency due to banks sitting on $517 billion in unrealized losses pic.twitter.com/XReQWwNIV5

— Carl ₿ MENGER ⚡️🇸🇻 (@CarlBMenger) June 4, 2024

🚨BREAKING: 63 AMERICAN BANKS ARE ON THE BRINK OF INSOLVENT COLLAPSE ACCORDING TO THE #FDIC

"Know What You Hold!!!" pic.twitter.com/H68wW21kj0

— Echo 𝕏 (@echodatruth) June 4, 2024

The Daily Hodl reports:

Unrealized losses in the US banking system are once again on the rise, according to new numbers from the Federal Deposit Insurance Corporation (FDIC).

In its Quarterly Banking Profile report, the FDIC says banks are now saddled with more than half a trillion dollars in paper losses on their balance sheets, due largely to exposure to the residential real estate market.

Unrealized losses represent the difference between the price banks paid for securities and the current market value of those assets.

Although banks can hold securities until they mature without marking them to market on their balance sheets, unrealized losses can become an extreme liability when banks need liquidity.

The FDIC’s own report:

The banking industry continued to show resilience in the first quarter. Net income rebounded from the non-recurring expenses that affected earnings last quarter, asset quality metrics remained generally favorable, and the industry’s liquidity was stable. However, the industry’s net interest margin declined as competition continued to pressure rates paid on deposits and asset yields declined.

The banking industry’s net income of $64.2 billion in the first quarter was an increase of 79.5 percent from the prior quarter, mainly due to lower expense related to the FDIC special assessment and lower goodwill write downs.  Otherwise, net income in the first quarter would have increased 14.3 percent from the prior quarter as higher non-interest income and lower provision expenses more than offset a decline in net interest income.

Community banks reported net income of $6.3 billion, a quarterly increase of 6.1 percent, driven by better results on the sale of securities and lower non-interest and provision expenses.

The industry’s net interest margin declined by 10 basis points to 3.17 percent, below the pre-pandemic average of 3.25 percent. Continued deposit competition caused funding costs to increase during the quarter while the yield on earning assets declined. The net interest margin for community banks also declined in the first quarter and remains below its pre-pandemic average.

Unrealized losses on available-for-sale and held-to-maturity securities increased by $39 billion to $517 billion in the first quarter. Higher unrealized losses on residential mortgage-backed securities, resulting from higher mortgage rates in the first quarter, drove the overall increase. This is the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began to raise interest rates in first quarter 2022.

The industry’s total loans declined by $35 billion, or 0.3 percent, in the first quarter. Most of the decline was reported by the largest banks, in line with a seasonal decline in credit card loans and lower auto loan balances. The industry’s year-over-year loan growth rate of 1.7 percent, the slowest rate of annual growth since third quarter 2021, has steadily declined over the past year. The annual increase was led by credit card loans and CRE loans. Loan growth at community banks was more robust, increasing 0.9 percent from the prior quarter and 7.1 percent from the prior year, led by CRE and residential mortgage loans.

Asset quality metrics were generally favorable with the exception of material deterioration in CRE and credit card portfolios. The industry’s noncurrent rate increased five basis points from the prior quarter to 0.91 percent, a level still well below the pre-pandemic average noncurrent rate of 1.28 percent.

The increase in non-current loan balances continued among non-owner occupied CRE loans, driven by office loans at the largest banks, those with assets greater than $250 billion. The next tier of banks, those with total assets between $10 billion and $250 billion in assets, is also showing some stress in non-owner occupied CRE loans. Weak demand for office space is softening property values, and higher interest rates are affecting the credit quality and refinancing ability of office and other types of CRE loans. As a result, the noncurrent rate for non-owner occupied CRE loans is now at its highest level since fourth quarter 2013.

Driven by write-downs on credit cards, the industry’s quarterly net charge-off rate remained at 0.65 percent for the second straight quarter, 24 basis points higher than the prior year’s rate. The current net charge-off rate is 17 basis points higher than the pre-pandemic average. The credit card net charge-off rate was the highest rate since third quarter 2011.

Domestic deposits increased for a second consecutive quarter, this quarter by $191 billion, driven by growth in transaction accounts. The shift away from non-interest-bearing deposits toward interest-bearing deposits continued, as interest-bearing deposits increased 1.7 percent quarter over quarter and non-interest-bearing deposits declined for the eighth consecutive quarter. Estimated uninsured deposits increased $63 billion in the quarter, representing the first reported increase since fourth quarter 2021.

The number of banks on the Problem Bank List, those with a CAMELS composite rating of “4” or “5,” increased from 52 in fourth quarter 2023 to 63 in first quarter 2024. The number of problem banks represented 1.4 percent of total banks, which was within the normal range for non-crisis periods of one to two percent of all banks.  Total assets held by problem banks increased $15.8 billion to $82.1 billion during the quarter.

The Deposit Insurance Fund (DIF) balance was $125.3 billion on March 31, up $3.5 billion from the end of the fourth quarter. Insured deposits increased by 1.1 percent, about half of typical growth in the first quarter. The reserve ratio, or the fund balance relative to insured deposits, increased by two basis points to 1.17 percent. The reserve ratio currently remains on track to reach the 1.35 percent minimum reserve ratio by the statutory deadline of September 30, 2028.

And let’s not forget, the CEO of the FDIC, Martin Gruenberg, is stepping down:

Republicans on the House Financial Services Committee laid into FDIC chairman Martin Gruenberg over a report that revealed widespread sexual harassment at the agency, badgering the Democrat to resign. https://t.co/pS73rxPosR

— Drogon (@drogon_dracarys) June 3, 2024