Unrealized losses on investment securities at banks in the United States rose in the last quarter of 2024 as interest rates rose during the quarter, according to an analysis by a finance professor at Florida Atlantic University.

Unrealized losses on investment securities at banks in the United States rose in the last quarter of 2024 as interest rates rose during the quarter, according to an analysis by a finance professor at Florida Atlantic University.

In the last quarter, 34 banks with more than $1 billion in assets reported unrealized losses on their investment securities equal to 50% or more of their Common Equity Tier One Capital (CET1), up from 12 in Q3 2024, according to the FAU’s U.S. Banks’ Unrealized Losses on Investment Securities Screener. Rising long-term rates from Sept. 30 to Dec. 31, 2024 (3.80% to 4.57%) once again hammered banks that already had extensive interest-rate risk in their investment-securities portfolios.

“When you have large losses in your securities portfolio, and something else goes wrong, the real danger arises,” said Rebel A. Cole, Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in FAU’s College of Business. “The real risk is with regional banks holding between $10 billion and $200 billion in assets as these banks rely heavily on uninsured deposits –primarily business checking accounts exceeding the $250,000 FDIC limit. If there’s trouble, uninsured depositors may pull their money, which can quickly kill a bank.”

Due to the spike in interest rates during the fourth quarter, aggregate unrealized securities losses on bank balance sheets shot up to $483 billion for Q4 2024, up $117 billion from $366 billion for Q3 2024. The fluctuation in interest rates during Q1 2025 has had a positive impact on banks and their balance sheets, as the 10-year treasury yield has trended downward.

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 Q4 2024, Cole focused on 1,021 banks with more than $1 billion in assets to calculate unrealized losses on investment securities and compare those losses to a bank’s Common Equity Tier 1 Capital (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 worst cases, a bank may face closure by the FDIC.

“For over a year now, these banks have had to slow their lending, which has had adverse effects in the areas they serve,” Cole said. “However, the problem isn’t as severe as it could be because the $4 trillion banks – such as Bank of America – are in relatively good shape. Regulators have ensured they maintain stability. While Bank of America does have some losses on securities, they’re still performing well, and these four large banks account for about one-third of total bank lending in the country.”

-FAU-