FAU Data Analysis: Falling Rates Bring Some Relief to Banks
Falling interest rates brought some relief to banks’ portfolios for unrealized losses on investment securities, according to a data analysis from a finance professor at Florida Atlantic University.
Falling interest rates brought some relief to banks’ portfolios for unrealized losses on investment securities, according to a data analysis from a finance professor at Florida Atlantic University.
Only two banks with assets over $1 billion reported unbooked securities losses greater than their total equity in the first quarter of 2025, down from three in the last quarter of 2024, according to the U.S. Banks’ Unrealized Losses on Investment Securities screener. For unbooked losses equal to 50% of Common Equity Tier 1 Capital (CET1) equity, 24 banks were on the list for the first quarter of this year, down from 34 in the fourth quarter of 2024.
Rates dropped from the end of 2024 through the end of March, providing some relief to banks that had extensive interest rate risk in their investment securities portfolios. The yield on the 10-year treasury bond fell from 4.57 to 4.25 as of the end of March.
“While this would appear to be good news for the U.S. banking industry, with unrealized securities losses declining by $69 billion from the end of 2024 to March, rates have climbed back to where they were at the end of 2024 so that losses today would be back up close to $500 billion,” said Rebel Cole, Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in the College of Business.
The aggregate unbooked securities losses on bank balance sheets declined by $69 billion from $483 billion at the end of the fourth quarter in 2024 to $414 billion at the end of the first quarter this year.
The quarterly U.S. Banks’ Unrealized Losses on Investment Securities Screener, produced as part of The Banking Initiative in FAU’s College of Business, measures banks’ exposure to risk based on their unrealized losses in their investment securities portfolios. To calculate a bank’s risk, Cole uses the most recently available data from quarterly call reports published by the U.S. Federal Financial Institutions Examination Council.
Of the 4,543 banks reporting in the first quarter for this year, Cole focused on 1,042 banks with more than $1 billion in assets to calculate unrealized losses on investment securities and compare those losses to a bank’s CET1. Regulators would force a bank that lost half of its CET1 capital to take remedial actions, such as raising new capital or seeking a merger partner; in the worst case, a bank may face closure by the FDIC.
“It’s likely that unbooked losses will continue to grow as interest rates continue to move higher” Cole said. “Both the 50-day and 200-day moving average rate on the 10-Year Treasury bond are rising so losses are growing, not shrinking. And this is only one part of banks’ balance sheets that are suffering from rising rates. There also are massive unrealized losses on banks’ residential and commercial mortgage portfolios that total to another $500 billion.”
-FAU-
Latest Research
- Fixing the Leak: An Opioid Treatment for Dopamine Disorders?A breakthrough by FAU researchers shows that blocking the kappa opioid receptor improves behavioral deficits tied to ADHD, autism and bipolar disorder, providing a potentially safer yet effective treatment.
- FAU Experts for the 2025 Atlantic Hurricane SeasonSeveral Florida Atlantic University faculty experts are available to discuss a range of hurricane-related topics such as preparedness, evacuation planning, storm impacts and post-disaster recovery.
- FAU Engineering Lands NSF Grant for Multi-robot Coordination TestbedThe project will tackle some of the most challenging problems in autonomous systems by enabling robust, scalable coordination of aerial robot teams in unpredictable real-world environments.
- 'Sharkitecture:' A Nanoscale Look Inside a Blacktip Shark's SkeletonFAU researchers have mapped the internal structure of blacktip sharks in unprecedented detail using synchrotron X-ray nanotomography with detailed 3D imaging and in-situ mechanical testing.
- Hari Kalva, Ph.D., Inducted into the Florida Inventors Hall of FameWith 73 U.S. patents to his name, FAU engineering's Hari Kalva, Ph.D., a pioneering innovator in video technology, is one of 10 inventors selected for the 2025 class of the Florida Inventors Hall of Fame.
- Study: Supply Chain Plasticity and Firm Adaptation to Tariffs, RiskAs tariffs create economic uncertainty for firms and consumers , supply chain plasticity could be the key to helping firms navigate the trade environment, according to researchers at FAU and two other schools.