According to the Federal Deposit Insurance Corporation, the organization that administers the mechanism of guarantees granted by the United States government to bank deposits in the United States, the total value of potential losses on the banks’ balance sheets reached $620.4 billion at the end of 2022. This information is widely reported in the American financial press following the bankruptcy of several medium-sized banks, following that of the Silicon Valley Bank.
It is not excluded that the objective of this media coverage was to demonstrate that the Californian bank had not been the victim of bad choices on the part of its management, but rather of an economic situation which weakened the banks. smaller, reports Bloomberg. This is also how the fall of the SVB is widely explained in some media: collateral damage from the decisions of the Federal Reserve (the American central bank). This last is criticized for having constantly maintained, at first, that inflation would be temporary and that there was no need to increase its key rate. This stance encouraged businesses and the government to continue borrowing because interest rates were low, and encouraged banks to lend more to earn margins.
The potential losses in question have two forms: those relating to financial instruments, held for the long term (340 billion dollars) and those relating to products registered as available for sale, and which can therefore be realized at any time. ($280 billion).
With rates that remain high and might remain so to contain inflation as well as a strong dollar, these potential losses are likely to materialize quickly if banks come under liquidity pressure and have to sell their available-for-sale debt securities. . For securities that will be kept to maturity, they will still show a loss of opportunity. Even if the debtors repay the amount invested, it will show a discount due to the level of inflation.
