Bank of America massive unrealised losses

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The second largest lender in the U.S. has reported unrealised losses of $131.6 billion for Q3, hamstringing the bank from deploying its cash elsewhere.

Bad decisions by banks are highlighting just how fragile the banking system is right now. That the second biggest lending bank in the U.S. should be under water to the tune of $131.6 billion on securities, even if they are guaranteed by the government, is cause for huge concern.

Losses or not?

The bank itself stated through its chief financial officer, Alistair Borthwick, quoted by Reuters, that because the unrealised losses were all tied to government-guaranteed securities, the bank would just hold them through to maturity and therefore make zero losses.

Be that as it may, if an unforeseen event were to happen in the banking sector, which is far more likely in this current incredibly unstable economic environment, and Bank of America was forced to sell its securities, the loss would become realised and this systemically important bank could fail.

$650 billion in combined unrealised losses

Silicon Valley Bank was a recent example of a bank failing because its investors began to pull deposits out and the bank was forced to sell assets on its portfolio at a big loss, which helped to cause its downfall.

While Silicon Valley Bank was not a Global Systemically Important Bank (GSIB), if Bank of America were facing the same catastrophic chain of events, the Federal Reserve, U.S. Treasury, and the FDIC would likely step in to bail the bank out.

And it’s not just Bank of America that is facing this issue. According to Moody’s ratings agency, U.S. banks are confronting a combined $650 billion in unrealised losses for Q3 in their securities portfolios, which is up from $558 billion in Q2.

Opinion

Banks take huge risks with customer money, many are highly leveraged, and many of them are insolvent. This is all to be added to the atrocious debt pile that the U.S. has racked up and continues to add to.

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The world is witnessing the most extremely perilous times, and therefore all need to protect themselves as best they can. Educating oneself on Bitcoin is a starting point.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.