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Unrealized Losses in U.S. Banks Hold Steady in Q2

Unrealized losses in U.S. banks’ portfolios of investment securities remained relatively unchanged at the end of the second quarter of the year, posing continuing concerns about the stability of the banking system, according to a screener from a banking and finance expert at ��Ʒ�ٸ�XXXX����.

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Unrealized losses in U.S. banks’ portfolios of investment securities remained relatively unchanged at the end of the second quarter of the year, posing continuing concerns about the stability of the banking system, according to a screener from a banking and finance expert at ��Ʒ�ٸ�XXXX����.

Aggregate unbooked losses on investment securities on U.S. bank balance sheets declined by $17 billion from the first quarter of 2025 ($414 billion) to the second quarter of 2025 ($397 billion). The two basis-point decline in long-term Treasury Bond rates from Mar. 31 (4.25%) to June 30 (4.23%) had little impact on security values, with most of the decline due to sales of securities rather than to changes in the value of securities.

“The largest consequences are that these banks have about $6 trillion tied up in these securities that are losing money, preventing them from making new loans,” said , Ph.D., Lynn Eminent Chaired professor of finance in ��Ʒ�ٸ�XXXX����’s . “This chokes off the availability of credit from these banks for making loans to consumers, businesses, and anyone else they lend to. The banks cannot sell those securities without realizing these losses, so they are losing money, making it more difficult for them to originate new loans.”

Only one “relatively small bank” reported losses greater than CET1 equity, down from two in the first quarter of 2025, according to the screener. Only 16 banks reported unbooked losses equal to 50% or more of CET1, down from 24 in the first quarter of 2025, and 34 in the fourth quarter of 2024.

Of the 4,477 banks reporting in the second quarter of the year, Cole focused on 1,049 banks with more than $1 billion in assets to calculate unrealized losses on investment securities and compare those losses to a bank’s CET1. The losses on the “available for sale” securities portfolio are subtracted from Total Equity Capital as “Accumulated Other Comprehensive Income,” but there is an “opt-out” for all but the 54 complex banks choosing the “advanced approach” to regulatory capital. For those banks, Cole sums the losses on HTM and AFS and divided by CET1. For advanced banks, Cole divides the losses on HTM by CET1. For comparison, HTM loss divided by total equity capital is also presented.

Regulators would force a bank that lost half of its CET1 capital to take remedial actions, such as raising new capital or seeking a merger partner; in the worst case, a bank may face closure by the FDIC.

“Investors are well aware that it’s unlikely this situation will get better,” Cole said. “This is only one issue facing banks, as interest rates are also impacting the commercial real estate exposures for banks. It’s one leg of a three-legged stool that keeps getting shorter.”

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