Gruenberg: Banks’ unrealized losses have grown amid rising interest rate environment

The most recent FDIC Quarterly Banking Profile will show that banks’ unrealized losses have increased since the last quarterly report, when they stood at $470 billion, FDIC Acting Chairman Martin Gruenberg said today during his confirmation hearing before the Senate Banking Committee. Last month, President Joe Biden nominated Gruenberg as FDIC chairman, Travis Hill as FDIC vice chairman and Jonathan McKernan as FDIC board member. All three appeared before lawmakers alongside Kimberly Ann McClain, who was nominated to be assistant secretary of Housing and Urban Development.

The FDIC will release the QBP for the third quarter of 2022 Thursday morning. While not giving specifics, Gruenberg said the report will show banks’ unrealized losses have grown since the last report. He explained that over the last several years, banks accumulated longer-term securities during the prolonged period of low interest rates to help manage through that environment, but that with rates now rising, “those securities actually have a negative value on the balance sheets.” He added, however, that “right now our banks have strong liquidity so they shouldn’t have to dispose of those assets. But as the market evolves and banks may need to dispose of those assets, there are substantial unrealized losses that could impact our institutions.”

Gruenberg also said that a joint-agency rulemaking that would amend regulations implementing the Community Reinvestment Act could be completed by early next year. The FDIC, OCC and Federal Reserve announced the rulemaking in May and took public comments earlier this year. “It is a very ambitious rulemaking. Believe me, we are very much focused on getting it done,” he said.