by Pam Martens and Russ Martens at Wall Street on Parade
On March 30, 2022, two highly troubling events occurred: (1) Fed data showed that unrealized losses on available-for-sale securities at the 25 largest U.S. banks were approaching the levels they had reached during the financial crisis in 2008; and (2) the Fed simply stopped reporting unrealized gains and losses on these banks’ securities.
As the chart above indicates, the Fed had reported this data series from October 2, 1996 to March 30, 2022 – and then, poof, it was gone and could no longer be graphed weekly at FRED, the St. Louis Fed’s Economic Data website. (See chart above from FRED.) On the same date, the Fed also discontinued the weekly data for unrealized losses or gains on available-for-sale securities at all commercial banks and small banks.)
This data series was halted after the Fed had embarked on March 17, 2022 on the first leg of 11 consecutive rate increases, at the fastest pace in 40 years. The Fed took its benchmark Fed Funds rate from 0.00 – 0.25 percent on March 16, 2022 to 5.25 – 5.50 percent by its last rate hike on July 27 of this year.
The Fed had little choice but to hike rates at this speed because the U.S. was facing spiraling inflation pressures.
Unfortunately for U.S. banks, these rate hikes came after the banks had loaded up on low interest rate Treasury securities and federal agency Mortgage-Backed Securities (MBS). The banks had loaded up on these securities because their deposit balances had swollen to an historic level as a result of the trillions in stimulus payments that the federal government direct-deposited into depositor accounts at banks to deal with the economic impact of the COVID-19 pandemic. The pandemic and related business closures negatively impacted business loan demand so banks turned to government-backed bonds as a safe place to park the trillions of dollars in extra deposits.
In hindsight, of course, parking large amounts of a bank’s deposits in…
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