Banks Hit With $512.9 Billion in Unrealized Losses, ‘Problem Bank’ Numbers Soar – FDIC Issues Warning to Consumers
Unrealized losses on U.S. banking assets have soared to a staggering $512.9 billion, raising alarm bells for the financial sector. According to the FDIC’s Quarterly Banking Profile for the second quarter of 2024, this marks the tenth consecutive quarter of unusually high losses, fueled largely by rising interest rates and declining asset values.
With the pressure mounting, the stability of the banking industry is being questioned as it grapples with increasing risks tied to inflation, credit quality, and deteriorating loan portfolios.
Net Income Rebounds but Faces Pressure
Despite the surge in unrealized losses, the banking industry’s net income showed resilience, rebounding to $71.5 billion in the second quarter—a 11.4% increase from the previous quarter.
This rebound was largely driven by nonrecurring items including an estimated $4 billion reduction in reported expense related to the FDIC special assessment, approximately $10 billion in one-time gains on equity security transactions, and the sale of an institution’s insurance division that resulted in an after-tax $4.9 billion gain.
Net Interest Margins Decline Amid Deposit Competition
The banking industry’s net interest margin dropped by 1 basis points in the last quarter, reaching 3.16 percent—below the pre-pandemic average of 3.25 percent.
This decline was driven by rising funding costs and a decrease in earning asset yields, largely due to seasonal drops in credit card lending. All asset-size categories saw a quarter-over-quarter decrease in their net interest margins.
Unrealized Losses Skyrocket on Mortgage-Backed Securities
Unrealized losses on available-for-sale and held-to-maturity securities grew by $39 billion in the first quarter, reaching a total of $517 billion.
The rise was primarily driven by higher unrealized losses on residential mortgage-backed securities, spurred by an increase in mortgage rates during the quarter. This marks the ninth consecutive quarter of unusually elevated unrealized losses since the Federal Reserve began raising interest rates in early 2022.
Loan Growth Slows to Multi-Year Low
In the first quarter of 2024, the banking sector also saw its slowest annual loan growth rate since the third quarter of 2021, with total loans declining by $35 billion, or 0.3%, in the first quarter.
The largest banks were hit hardest, driven by seasonal declines in credit card loans and shrinking auto loan balances. While community banks fared slightly better with a 0.9% quarterly loan growth, the overall sector is clearly struggling to maintain momentum.
CRE Show Signs of Stress
Noncurrent loan balances for non-owner occupied commercial real estate (CRE) loans continued to rise in the first quarter, largely driven by office loans at the largest banks, those holding assets over $250 billion.
Banks in the next tier, with assets between $10 billion and $250 billion, are also experiencing stress in non-owner occupied CRE loans. Weak office space demand is lowering property values, while rising interest rates are impacting the credit quality and refinancing prospects of office and other CRE loans.
Consequently, the noncurrent rate for these loans has reached its highest level since Q4 2013.
Credit Card Portfolios Are Concerning
Provisions for credit losses totaled $23.3 billion in second quarter 2024, up $2.7 billion from the previous quarter.
Provision expenses have been higher than the pre-pandemic average for the past eight quarters.
Deposit Shifts Continue as Insured Deposits Drop
Domestic deposits saw a decrease of $197.7 billion in the second quarter, and uninsured deposits dropped to 50.4 billion.
Problem Banks on the Rise
The FDIC’s Problem Bank List swelled to 66 institutions in the second quarter, up from 63 in the prior quarter.
These problem banks hold $83.4 billion in assets, a $1.3 billion increase from the previous quarter. This uptick signals growing risks within the sector as the financial environment becomes increasingly volatile.
Deposit Insurance Fund Holds Steady
Despite the headwinds, the Deposit Insurance Fund (DIF) saw an increase in its balance, rising by $3.9 billion to $129.2 billion by the end of June. The reserve ratio climbed by four basis points to 1.21%.
Growing Risks Require Vigilance
While the banking industry demonstrated resilience in the face of challenges in the second quarter, the growing risks cannot be ignored. With unrealized losses reaching concerning levels, ongoing pressures from inflation, rising interest rates, and deteriorating loan portfolios—particularly in CRE and credit cards—the financial sector is far from out of the woods.
The FDIC’s Quarterly Banking Profile paints a picture of an industry facing significant headwinds, with mounting concerns about its ability to navigate the road ahead.
As risks continue to evolve, regulatory bodies and financial institutions must remain vigilant to avoid deeper financial instability that could threaten the broader economy.
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The 10 States Taxing Social Security in 2024 and the 2 That Just Stopped
While many bask in the belief that their golden years will be tax-friendly, residents in nine specific states are facing a reality check as their Social Security benefits come under the taxman’s purview. Conversely, a wave of relief is set to wash over two states, marking an end to their era of taxing these benefits. This shift paints a complex portrait of retirement planning across the U.S., underscoring the importance of staying informed of the ever changing tax laws. Are you residing in one of these states? It’s time to uncover the impact of these tax changes on your retirement strategy and possibly reconsider your locale choice for those serene post-work years. Here are the states taxing social security benefits.
The States Taxing Social Security in 2024 and the 2 That Just Stopped
Shift From Employee to Investor Mindset with the Cashflow Quadrant Methodology by Robert Kiyosaki
Countless systems have been established that provide a much better understanding of what income generation is, how it can be used, and how individuals can organize their financial life as they work towards financial freedom. One of the more successful and better-known examples of financial education is the Cashflow Quadrant, the book by Robert Kiyosaki. Rich Dad’s Cashflow Quadrant was revolutionary for the way it organized money and helped people better learn how to increase their income. As the name implies, there are four quadrants within the Cashflow Quadrant. By mastering each of the four categories – or specializing in one – a person can increase their revenue stream and ultimately make more money from assets.
Shift From Employee to Investor Mindset with the Cashflow Quadrant Methodology by Robert Kiyosaki
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
Dreaming of retiring to a sun-drenched beach or a quaint village? Many Americans envision spending their golden years abroad, savoring the delights of new cultures and landscapes. However, an essential part of this dream hinges on the financial stability provided by Social Security benefits. Before packing your bags and bidding farewell, it’s crucial to know that not all countries play by the same rules when it comes to collecting these benefits overseas. Here are the nine countries where your dream of retiring abroad could hit a snag, as Social Security benefits don’t cross every border. Avoid living in these countries so your retirement plans don’t get lost in translation.
Retire Abroad and Still Collect Social Security? Avoid These 9 Countries Where It’s Not Possible
Maximize Your Benefits: Essential Social Security Strategies for Singles
While singles may have fewer Social Security filing options than married couples, smart planning around when to claim benefits can pay off for anyone, including those flying solo.
Maximize Your Benefits: Essential Social Security Strategies for Singles
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
