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Journal Article
The Implications of Unrealized Losses for Banks
nterest rates have risen across the yield curve since the Federal Open Market Committee began tightening monetary policy in March 2022. After amassing securities during the pandemic, commercial banks saw rising interest rates erode the value of their securities portfolios by nearly $600 billion, or about 30 percent of their capital holdings. In some cases, declines in valuation of securities holdings in response to interest rate changes—known as “unrealized losses”—can mechanically reduce key regulatory capital and liquidity ratios. Should banks need to sell the securities to generate ...
Report
Investor Attention to Bank Risk During the Spring 2023 Bank Run
We examine how investors’ perception of bank balance sheet risk evolved before and during the March-April 2023 bank run. To do so, we estimate the covariance (“beta”) of bank excess stock returns with returns on factors constructed from long-short portfolios sorted on shares of uninsured deposits and unrealized losses on securities. We find that the market’s perception of bank risk shifted in both the time series and the cross-section. From January 2022 to February 2023, both factor betas were mostly insignificant, but after the bank run started, they became positive and significant ...