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Bank of America's unrealized losses on securities rose to $131.6B

113 points by evanjrowley 3y ago

deleted 3y ago
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frognumber 3y ago
BoA has a market cap of $219.83 Billion. The unrealized losses are more than half of that. That's... concerning. When I hear statements like "the lender has strong liquidity with consumer deposits and higher capital," I immediately think about a run-on-the-bank. If I had my money there, and I read a statement like that, I'd be discreetly moving it elsewhere. The article concludes "this is a problem only if you have to sell them." That doesn't seem like an unreasonable scenario.
- HDThoreaun 3y ago
  As long as rates eventually go back down before boa runs out of money this really isn't an issue. Of course you point out that they very well could run out of money but imo boa is easily in the "too big to fail" category. It would be bailed out if it faced major trouble, possibly even just the fed deciding to end the high interest rate era and "solving" the whole thing. Certainly bankees would be saved as they were at the other failed banks which removes most of the incentive to run the bank.
  - lp0_on_fire 3y ago
    > imo boa is easily in the "too big to fail" category. Then Bank of America needs to be shattered into as many pieces as it takes to no longer be in the "too big to fail" category.
    - RCitronsBroker 3y ago
      Banks are investment vehicles that utilize a novel structure (being a bank) to enjoy the investment edge of, in case of failure, being able to hold customers money hostage, thereby strongarming the government into bailing them out to avoid the risk of financial mayhem.
      - lp0_on_fire 3y ago
        Correct - it's legalized extortion for all intents and purposes.
      - uticus 3y ago
        I appreciate the sarcasm. Of course it would take a lot more to prevent the money being held hostage than making it illegal. The whole concept of fractional-reserve banking would have to be abandoned. Whether you like the idea or not, we're stuck with it, there's no way to change it at this point.
        kylebenzle 3y ago
        I can't believe Im reading this comment on 2023! For TEN YEARS we have all had the ability to be our own bank. TEN YEARS ago I was telling people that within a year people would be carrying their net worth in their pocket and everyone would be their own bank in 5. Now, TEN YEARS later we still have people bemoaning the fack we are "dependent of banks". Lol, we are dependent on banks like a heroin addict is addicted to his fix, their cheap, easy free money. Banks are a sickness.
        quonn 3y ago
        If you refer to bitcoin, that‘s not new, you could with withdraw and store cash before. Or even gold. Or other small assets, such as art. Bam, no banks. And all of those options are as good or better than crypto. At least as long as you can‘t pay taxes in crypto and can‘t pay most services.
        dmoy 3y ago
        It's hard to read between the lines. "Be your own bank" in particular is a specific form of finance woo that gets peddled (also under the terms "infinite banking", "cash flow banking", etc). All of those are layers on top of really, really crappy life insurance policies. But the "hold net worth in pocket" part does sound like crypto.
  - RandomLensman 3y ago
    Why would rates need to come down again? The mark-to-market of those securities will go back to par regardless. Or are you saying they are financed via floating rates and negative carry will start to hurt them?
    - HDThoreaun 3y ago
      BoA deposits are down 8.5% yoy. This is forcing them to take out expensive loans from other banks that cost more than the loans they made early pandemic. Not a crippling issue, but they are losing money everyday rates stay high.
      - supportengineer 3y ago
        I received an offer from BofA for a 4.00% savings rate if I brought X amount of new money into the bank. Anyone else get an offer like this?
        hiatus 3y ago
        Ally bank offers over 4% for any amount, and has a no-penalty CD (you can close the account at any time, they use a trust behind the scenes) offering 4.5% iirc.
        ganoushoreilly 3y ago
        A few banks have been offering 4.00 or higher for the past 9 months or more. The apple card with Goldman Savings is currently at 4.15% and has been since it launched. It was mostly smaller banks that I saw offers in this range, but It looks like the bigger banks have to play along now, lest they lose more inflow.
        lotsofpulp 3y ago
        You can get 5.02% if you bring $100k to them anytime. They only make it available in a Merrill CMA (cash management account) though (see preferred deposit in pdf below). You can also reduce that $100k to $1 after you make the initial deposit and still maintain access to that savings rate. https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/ICCRateSheet.pdf https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMO... The preferred deposit account has always paid very competitive savings rates amongst all FDIC insured accounts.
  - landemva 3y ago
    > the fed deciding to end the high interest rate era I observe, with two USA war fronts, broad inflation will remain high and Federal Reserve will follow inflation with increasing rates. Treasury's Yellen says we can afford it. https://www.foxbusiness.com/economy/yellen-says-us-afford-support-two-wars-america-stands-behind-israel-period https://www.foxbusiness.com/economy/yellen-says-us-afford-su...
- ot 3y ago
  Comparing the balance sheet fluctuations of a bank to its market cap is meaningless. Banks are extremely leveraged by their nature, BA has like $3T in assets and $2.8T in liabilities, so minor swings in assets value move the equity by amounts that are comparable to the market cap.
  - samspenc 3y ago
    Thanks for this info, if I'm understanding this right, the current $131.6B in unrealized losses pales in comparison to their total 2.8T in liabilities (less than 5%). So even if they did have to sell all their bonds and lose all that money, it will account for less than 5% of their total liabilities and they would still be positive when calculating assets minus liabilities?
    - ot 3y ago
      Yes, according to those numbers BoA is technically solvent.
  - jerf 3y ago
    It does not follow from "Banks are extremely leveraged by their nature" that fluctuations in its asset value are meaningless. It is, right up until it isn't, and then it suddenly means everything. Which means it isn't meaningless at all. It's not like we live in a world where we've been banking for thousands of years without this ever being a problem. It was most recently a problem this year, and if your memory is fuzzy, it wasn't just Silicon Valley Bank. If you're going to excuse that away, then it was most recently a catastrophic problem in 2008, which isn't exactly "hasn't been a problem since the Roman empire" or anything. And if you're going to make excuses for the Global Financial Crisis and how that doesn't actually matter and doesn't need to be incorporated into anyone's models of how banks work, well, our world views are irreconcilably different. I can promise you the banks don't believe it's irrelevant.
    - dmoy 3y ago
      Note GP didn't say "fluctuations in its asset value are meaningless", they said "Comparing the balance sheet fluctuations of a bank to its market cap is meaningless". For example US Bank has $50B market cap, $500B deposits, and closer to $700B total assets.
- deleted 3y ago
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- RC_ITR 3y ago
  >I immediately think about a run-on-the-bank. If I had my money there, and I read a statement like that, I'd be discreetly moving it elsewhere. Congratulations! Whether intentional or not, you're trying to start a bank run! Please don't! The reality of the matter is literally any bank could not survive a bank run. Even JPMorgan. The entire business model of a bank is to take deposits, hope people ask for them in a predictable way, and then lend them out to people (often as mortgages or Treasuries, but also as a lot of different things). It's a weird system, but it's what we got. What is happening here is that the resale value of treasuries fall as interest rates rise. This is due to the weird quirk of treasuries having a set payment schedule, which forces the face value to change in order to reach parity with market interest rates. The amount that the government owes BoA at maturity is still the exact same number. Nothing about those Treasuries has actually changed other than the fact that they earn less interest than a newly issued treasury and if BoA needed to sell them quickly, they would be worth less than what they were paid for. As you'd guess, this only becomes a problem when people run the bank and the bank needs to sell those Treasuries to meet deposit requirements. In reality, if BoA gets in trouble, since it is a GSIB, the US government would just spot the bank the original value of those Treasuries (since again, nothing about them has actually changed and the government still owes BoA the original price eventually), everyone would complain, and then we'd move on. Things will be a lot nicer if we don't have to do that, so please stop!
  - nemo44x 3y ago
    > Nothing about those Treasuries has actually changed other than the fact that they earn less interest than a newly issued treasury and if BoA needed to sell them quickly, they would be worth less than what they were paid for. They bought them with money that isn't theirs and if they were to sell them all to return people's money then they would be bankrupt. So yes, a lot about those Treasuries has changed as the value of the asset is based on time and rate. Those Treasuries do in fact have a market price and although they'd return all their principal eventually, it isn't today and is actually a long time from today. It's completely disingenuous to say "nothing has changed". Nothing has changed other than the fact that the market value of the treasury is far less than what the bank could stand if forced liquidate them. Only a fool would keep any sort of serious money with BoA that isn't FDIC insured, etc.
- unyttigfjelltol 3y ago
  Compare to the Federal Reserve's own realized losses of over $100b[1] and recent articles pointing out that's actually an off-balance-sheet liability of member banks[2]. These aren't the Signature Banks and SVBs of the world and for that reason the concern on this board about what happens if the trend line extends still further-- it won't be. The concern really should be that this all represents a policy response that cannot be sustained, and so it won't be. [1] https://www.reuters.com/markets/us/fed-is-cutting-staff-after-more-than-decade-payroll-growth-2023-09-22/ https://www.reuters.com/markets/us/fed-is-cutting-staff-afte... [2] https://www.wsj.com/articles/the-new-bank-bailout-fed-member-district-banks-taxpayers-losses-b1b4735e https://www.wsj.com/articles/the-new-bank-bailout-fed-member...
  - landemva 3y ago
    > this all represents a policy response that cannot be sustained, and so it won't be. Are you implying increased interest rates, as set by Federal Reserve, will not continue? Or that Federal Reserve plan to pump underwater bank UST holdings will be enough to make it all OK? "The Bank Term Funding Program (BTFP) is a lender of last resort facility. It was created in March 2023 ..." https://www.brookings.edu/articles/what-did-the-fed-do-after-silicon-valley-bank-and-signature-bank-failed/ https://www.brookings.edu/articles/what-did-the-fed-do-after...
    - JumpCrisscross 3y ago
      > Are you implying increased interest rates, as set by Federal Reserve, will not continue? This is a recurring meme in Silicon Valley. To the point that I think executives at SVB believed it: that the Fed is constrained in raising rates by things like balance sheet losses or the interest cost of the federal debt. (It's not. It's constrained by job losses.)
      - landemva 3y ago
        SVB didn't care and had a C-level on board of directors of S.F. branch of Federal Reserve which was SVB's regulator. To clarify, I think it is likely increased interest rates will continue. Federal Reserve follows interest rates / inflation numbers, and war brings inflation.
- deleted 3y ago
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- onlyrealcuzzo 3y ago
  Good thing it's unrealized!
- supportengineer 3y ago
  Any consumer with $250k or under at BofA has nothing to worry about.
- plonk 3y ago
  What does a bank write if it's in a good place and the rumors are baseless? Or do you just leave the bank regardless of that to be sure?
Dowwie 3y ago
Non-issue. >"All of these are unrealized losses are on government- guaranteed securities," Bank of America's chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. "Because we're holding them to maturity, we will anticipate that we'll have zero losses over time."
- HDThoreaun 3y ago
  That's exactly what svb said to be far.
  - FromOmelas 3y ago
    yep. Due to the SVB failure, large banks are now backstopped by a guarantee that they can loan from the FED at 100% of the value of the bonds at redemption time (even though they're worth less right now, due to rates hiking). That would have been enough to save SVB, if it had already been in force at the time. see: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
    - amluto 3y ago
      It could save a bank from an immediate liquidity disaster. But it’s not a guaranteed long or even medium term solution. Imagine, in an extreme case, a bank with $1 billion par value of treasury bonds, with mark to market value of $800M. And $1 billion of customer deposits. And that’s it. (Obviously this is unrealistic.). Now the customers flee. The bank borrows against its $1bn of bonds and pays off the customers. The bank now has no customers, $1bn (par) of bonds, and $1bn of short-term debt to the Fed. They can roll that debt over forever, but they need to pay interest, and, when you imagine that $1bn (par!) of bonds as being worth $1bn, that’s only if they are held, earning essentially no interest, to maturity. So the bank has no income and is obligated to pay interest to the Fed until the bonds mature, and they can’t. Not can they sell the bonds because they will take a loss and be unable to roll over the loan. In other words, they’d be insolvent. They’re in the hole by $200M of present value, and they need assets or an income stream to back that up. The normal business of banking can provide that income stream. For example, sufficiently lazy customers will deposit funds at less than market interest, and the bank can earn the difference.
sschueller 3y ago
No, you are not going to force UBS to buy BoA as well.
- samspenc 3y ago
  If this did have to happen, I would assume it would be a US bank (e.g. JP Morgan Chase) that would buy out BofA rather than a Swiss bank. The reason UBS ended up buying Credit Suisse is because the Swiss government got involved and it was much easier to _convince_ a bank to buy another in the same country, especially when it is backed and supported by the government.
  - sschueller 3y ago
    UBS may as well be a US bank. Their primary currency is USD and it was partially also international pressure to prevent an economic collapse. The Swiss government could have taken the Swiss part of CS and let the rest dump.
paxys 3y ago
> "All of these are unrealized losses are on government- guaranteed securities," Bank of America's chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. "Because we're holding them to maturity, we will anticipate that we'll have zero losses over time."
- laweijfmvo 3y ago
  Same was true for SVB, except their customers got freaked and SVB couldn't raise enough liquidity in time -- I've heard they could have, had the Fed not closed for the day or something. So likely the Fed wouldn't let something similar happen to BoA.
  - paxys 3y ago
    If you are implying that BoA is in trouble if there is a bank run then yes, that applies to every bank in existence regardless of the circumstances. Considering their size, AUM and customer diversification (none of which worked in SVB's favor), there is a very low risk of that happening in this case.
    - chrisgd 3y ago
      Also, SVB filed to raise equity capital thereby saying to the market they needed to raise money and we’re trying to do so. They could have been selling some of those liquid bonds at a discount and taking gaap losses.
    - rich_sasha 3y ago
      Most BoA deposits are likely guaranteed since they come from private persons and are below the limit. So a run is far less likely even if they are / get in trouble.
      - jarym 3y ago
        This is true. The shock effect would be large across markets however.
josh_carterPDX 3y ago
To those suggesting that BofA be broken up because they are considered "too big too fail" should watch one of the many movies that cover the 2008 financial crisis. There are also some really good documentaries. Our government decided that the banks needed to consolidate in order to be more stable then enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which was put in place to "promote the financial stability of the United States." If you really want to ensure banks don't go through this again I would encourage you to call your elected officials to make sure they not just protect the Dodd-Frank act, but to expand the way it helps to protect consumers from banks being shady.
- lp0_on_fire 3y ago
  > Our government decided that the banks needed to consolidate in order to be more stable then enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which was put in place to "promote the financial stability of the United States." Our government decided to do what was best for the banks and the bankers. Meanwhile millions of people lost their homes and some have never recovered. Those that caused the problem were rewarded with golden parachutes and a comfy retirement. I am not keen to see that repeated and will support a primary challenger to any politician (of any party) that suggests it's time for "Too big to fail Part 2: even bigger". Let's hope it doesn't get there.
calderwoodra 3y ago
Yep, their unrealized losses on securities are high but they also have a huge inflation hedge position and have been increasing their reserves to survive a bank run. Compare this to SVB which had neither, and the headline seems much less alarming.
boringg 3y ago
Issue arises if: (1) People panic and force a drawdown ->> need to sell those securities (2) US Govt doesn't repay its debt likely the result of the right wing intransigence fighting over debt ceiling authorization.
- deleted 3y ago
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- SilasX 3y ago
  It’s not a “panic” when customers move their money to other banks that can actually afford to pay market rates of interest. Rather, it’s prudent financial management.
m3kw9 3y ago
Bond paper losses (unless the bond issuer defaults) are like opportunity costs if you let it mature.
mugivarra69 3y ago
lmao, no hedge?
sdfghswe 3y ago
BoA: nothing to see here despite us having $131bn in losses. Also BoA: wanna buy my 6.55% bonds?
userinanother 3y ago
For anyone that doesn’t understand why this is a problem take this example: In 2020 you might have bought 10year 50k ECB bonds yielding 0–.5%. But in 2023 you need to buy a car for 50k. You don’t have to sell your bonds at a loss but you will have to borrow the 50k at 7% to pay for the car so the loss will happen anyway every month you pay 7% and earn 0%
pjfin123 3y ago
> Keeping securities until maturity also gives it the flexibility to avert mark-to-market losses. They're still losses even if you don't mark them to the market. I think the next round of bailouts there is going to be a lot more corporate bond buying and subsidized borrowing by banks against bonds at par value.

113 points by evanjrowley 3y ago

deleted 3y ago

[deleted]

BoA has a market cap of $219.83 Billion. The unrealized losses are more than half of that. That's... concerning. When I hear statements like "the lender has strong liquidity with consumer deposits and higher capital," I immediately think about a run-on-the-bank. If I had my money there, and I read a statement like that, I'd be discreetly moving it elsewhere. The article concludes "this is a problem only if you have to sell them." That doesn't seem like an unreasonable scenario.

HDThoreaun 3y ago
As long as rates eventually go back down before boa runs out of money this really isn't an issue. Of course you point out that they very well could run out of money but imo boa is easily in the "too big to fail" category. It would be bailed out if it faced major trouble, possibly even just the fed deciding to end the high interest rate era and "solving" the whole thing. Certainly bankees would be saved as they were at the other failed banks which removes most of the incentive to run the bank.
- lp0_on_fire 3y ago
  > imo boa is easily in the "too big to fail" category. Then Bank of America needs to be shattered into as many pieces as it takes to no longer be in the "too big to fail" category.
  - RCitronsBroker 3y ago
    Banks are investment vehicles that utilize a novel structure (being a bank) to enjoy the investment edge of, in case of failure, being able to hold customers money hostage, thereby strongarming the government into bailing them out to avoid the risk of financial mayhem.
    - lp0_on_fire 3y ago
      Correct - it's legalized extortion for all intents and purposes.
    - uticus 3y ago
      I appreciate the sarcasm. Of course it would take a lot more to prevent the money being held hostage than making it illegal. The whole concept of fractional-reserve banking would have to be abandoned. Whether you like the idea or not, we're stuck with it, there's no way to change it at this point.
      - kylebenzle 3y ago
        I can't believe Im reading this comment on 2023! For TEN YEARS we have all had the ability to be our own bank. TEN YEARS ago I was telling people that within a year people would be carrying their net worth in their pocket and everyone would be their own bank in 5. Now, TEN YEARS later we still have people bemoaning the fack we are "dependent of banks". Lol, we are dependent on banks like a heroin addict is addicted to his fix, their cheap, easy free money. Banks are a sickness.
        quonn 3y ago
        If you refer to bitcoin, that‘s not new, you could with withdraw and store cash before. Or even gold. Or other small assets, such as art. Bam, no banks. And all of those options are as good or better than crypto. At least as long as you can‘t pay taxes in crypto and can‘t pay most services.
        dmoy 3y ago
        It's hard to read between the lines. "Be your own bank" in particular is a specific form of finance woo that gets peddled (also under the terms "infinite banking", "cash flow banking", etc). All of those are layers on top of really, really crappy life insurance policies. But the "hold net worth in pocket" part does sound like crypto.
- RandomLensman 3y ago
  Why would rates need to come down again? The mark-to-market of those securities will go back to par regardless. Or are you saying they are financed via floating rates and negative carry will start to hurt them?
  - HDThoreaun 3y ago
    BoA deposits are down 8.5% yoy. This is forcing them to take out expensive loans from other banks that cost more than the loans they made early pandemic. Not a crippling issue, but they are losing money everyday rates stay high.
    - supportengineer 3y ago
      I received an offer from BofA for a 4.00% savings rate if I brought X amount of new money into the bank. Anyone else get an offer like this?
      - hiatus 3y ago
        Ally bank offers over 4% for any amount, and has a no-penalty CD (you can close the account at any time, they use a trust behind the scenes) offering 4.5% iirc.
      - ganoushoreilly 3y ago
        A few banks have been offering 4.00 or higher for the past 9 months or more. The apple card with Goldman Savings is currently at 4.15% and has been since it launched. It was mostly smaller banks that I saw offers in this range, but It looks like the bigger banks have to play along now, lest they lose more inflow.
      - lotsofpulp 3y ago
        You can get 5.02% if you bring $100k to them anytime. They only make it available in a Merrill CMA (cash management account) though (see preferred deposit in pdf below). You can also reduce that $100k to $1 after you make the initial deposit and still maintain access to that savings rate. https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/ICCRateSheet.pdf https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMO... The preferred deposit account has always paid very competitive savings rates amongst all FDIC insured accounts.
- landemva 3y ago
  > the fed deciding to end the high interest rate era I observe, with two USA war fronts, broad inflation will remain high and Federal Reserve will follow inflation with increasing rates. Treasury's Yellen says we can afford it. https://www.foxbusiness.com/economy/yellen-says-us-afford-support-two-wars-america-stands-behind-israel-period https://www.foxbusiness.com/economy/yellen-says-us-afford-su...
ot 3y ago
Comparing the balance sheet fluctuations of a bank to its market cap is meaningless. Banks are extremely leveraged by their nature, BA has like $3T in assets and $2.8T in liabilities, so minor swings in assets value move the equity by amounts that are comparable to the market cap.
- samspenc 3y ago
  Thanks for this info, if I'm understanding this right, the current $131.6B in unrealized losses pales in comparison to their total 2.8T in liabilities (less than 5%). So even if they did have to sell all their bonds and lose all that money, it will account for less than 5% of their total liabilities and they would still be positive when calculating assets minus liabilities?
  - ot 3y ago
    Yes, according to those numbers BoA is technically solvent.
- jerf 3y ago
  It does not follow from "Banks are extremely leveraged by their nature" that fluctuations in its asset value are meaningless. It is, right up until it isn't, and then it suddenly means everything. Which means it isn't meaningless at all. It's not like we live in a world where we've been banking for thousands of years without this ever being a problem. It was most recently a problem this year, and if your memory is fuzzy, it wasn't just Silicon Valley Bank. If you're going to excuse that away, then it was most recently a catastrophic problem in 2008, which isn't exactly "hasn't been a problem since the Roman empire" or anything. And if you're going to make excuses for the Global Financial Crisis and how that doesn't actually matter and doesn't need to be incorporated into anyone's models of how banks work, well, our world views are irreconcilably different. I can promise you the banks don't believe it's irrelevant.
  - dmoy 3y ago
    Note GP didn't say "fluctuations in its asset value are meaningless", they said "Comparing the balance sheet fluctuations of a bank to its market cap is meaningless". For example US Bank has $50B market cap, $500B deposits, and closer to $700B total assets.
deleted 3y ago
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RC_ITR 3y ago
>I immediately think about a run-on-the-bank. If I had my money there, and I read a statement like that, I'd be discreetly moving it elsewhere. Congratulations! Whether intentional or not, you're trying to start a bank run! Please don't! The reality of the matter is literally any bank could not survive a bank run. Even JPMorgan. The entire business model of a bank is to take deposits, hope people ask for them in a predictable way, and then lend them out to people (often as mortgages or Treasuries, but also as a lot of different things). It's a weird system, but it's what we got. What is happening here is that the resale value of treasuries fall as interest rates rise. This is due to the weird quirk of treasuries having a set payment schedule, which forces the face value to change in order to reach parity with market interest rates. The amount that the government owes BoA at maturity is still the exact same number. Nothing about those Treasuries has actually changed other than the fact that they earn less interest than a newly issued treasury and if BoA needed to sell them quickly, they would be worth less than what they were paid for. As you'd guess, this only becomes a problem when people run the bank and the bank needs to sell those Treasuries to meet deposit requirements. In reality, if BoA gets in trouble, since it is a GSIB, the US government would just spot the bank the original value of those Treasuries (since again, nothing about them has actually changed and the government still owes BoA the original price eventually), everyone would complain, and then we'd move on. Things will be a lot nicer if we don't have to do that, so please stop!
- nemo44x 3y ago
  > Nothing about those Treasuries has actually changed other than the fact that they earn less interest than a newly issued treasury and if BoA needed to sell them quickly, they would be worth less than what they were paid for. They bought them with money that isn't theirs and if they were to sell them all to return people's money then they would be bankrupt. So yes, a lot about those Treasuries has changed as the value of the asset is based on time and rate. Those Treasuries do in fact have a market price and although they'd return all their principal eventually, it isn't today and is actually a long time from today. It's completely disingenuous to say "nothing has changed". Nothing has changed other than the fact that the market value of the treasury is far less than what the bank could stand if forced liquidate them. Only a fool would keep any sort of serious money with BoA that isn't FDIC insured, etc.
unyttigfjelltol 3y ago
Compare to the Federal Reserve's own realized losses of over $100b[1] and recent articles pointing out that's actually an off-balance-sheet liability of member banks[2]. These aren't the Signature Banks and SVBs of the world and for that reason the concern on this board about what happens if the trend line extends still further-- it won't be. The concern really should be that this all represents a policy response that cannot be sustained, and so it won't be. [1] https://www.reuters.com/markets/us/fed-is-cutting-staff-after-more-than-decade-payroll-growth-2023-09-22/ https://www.reuters.com/markets/us/fed-is-cutting-staff-afte... [2] https://www.wsj.com/articles/the-new-bank-bailout-fed-member-district-banks-taxpayers-losses-b1b4735e https://www.wsj.com/articles/the-new-bank-bailout-fed-member...
- landemva 3y ago
  > this all represents a policy response that cannot be sustained, and so it won't be. Are you implying increased interest rates, as set by Federal Reserve, will not continue? Or that Federal Reserve plan to pump underwater bank UST holdings will be enough to make it all OK? "The Bank Term Funding Program (BTFP) is a lender of last resort facility. It was created in March 2023 ..." https://www.brookings.edu/articles/what-did-the-fed-do-after-silicon-valley-bank-and-signature-bank-failed/ https://www.brookings.edu/articles/what-did-the-fed-do-after...
  - JumpCrisscross 3y ago
    > Are you implying increased interest rates, as set by Federal Reserve, will not continue? This is a recurring meme in Silicon Valley. To the point that I think executives at SVB believed it: that the Fed is constrained in raising rates by things like balance sheet losses or the interest cost of the federal debt. (It's not. It's constrained by job losses.)
    - landemva 3y ago
      SVB didn't care and had a C-level on board of directors of S.F. branch of Federal Reserve which was SVB's regulator. To clarify, I think it is likely increased interest rates will continue. Federal Reserve follows interest rates / inflation numbers, and war brings inflation.
deleted 3y ago
[deleted]
onlyrealcuzzo 3y ago
Good thing it's unrealized!
supportengineer 3y ago
Any consumer with $250k or under at BofA has nothing to worry about.
plonk 3y ago
What does a bank write if it's in a good place and the rumors are baseless? Or do you just leave the bank regardless of that to be sure?

Dowwie 3y ago

Non-issue. >"All of these are unrealized losses are on government- guaranteed securities," Bank of America's chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. "Because we're holding them to maturity, we will anticipate that we'll have zero losses over time."

HDThoreaun 3y ago
That's exactly what svb said to be far.
- FromOmelas 3y ago
  yep. Due to the SVB failure, large banks are now backstopped by a guarantee that they can loan from the FED at 100% of the value of the bonds at redemption time (even though they're worth less right now, due to rates hiking). That would have been enough to save SVB, if it had already been in force at the time. see: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
  - amluto 3y ago
    It could save a bank from an immediate liquidity disaster. But it’s not a guaranteed long or even medium term solution. Imagine, in an extreme case, a bank with $1 billion par value of treasury bonds, with mark to market value of $800M. And $1 billion of customer deposits. And that’s it. (Obviously this is unrealistic.). Now the customers flee. The bank borrows against its $1bn of bonds and pays off the customers. The bank now has no customers, $1bn (par) of bonds, and $1bn of short-term debt to the Fed. They can roll that debt over forever, but they need to pay interest, and, when you imagine that $1bn (par!) of bonds as being worth $1bn, that’s only if they are held, earning essentially no interest, to maturity. So the bank has no income and is obligated to pay interest to the Fed until the bonds mature, and they can’t. Not can they sell the bonds because they will take a loss and be unable to roll over the loan. In other words, they’d be insolvent. They’re in the hole by $200M of present value, and they need assets or an income stream to back that up. The normal business of banking can provide that income stream. For example, sufficiently lazy customers will deposit funds at less than market interest, and the bank can earn the difference.

sschueller 3y ago

No, you are not going to force UBS to buy BoA as well.

samspenc 3y ago
If this did have to happen, I would assume it would be a US bank (e.g. JP Morgan Chase) that would buy out BofA rather than a Swiss bank. The reason UBS ended up buying Credit Suisse is because the Swiss government got involved and it was much easier to _convince_ a bank to buy another in the same country, especially when it is backed and supported by the government.
- sschueller 3y ago
  UBS may as well be a US bank. Their primary currency is USD and it was partially also international pressure to prevent an economic collapse. The Swiss government could have taken the Swiss part of CS and let the rest dump.

paxys 3y ago

> "All of these are unrealized losses are on government- guaranteed securities," Bank of America's chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. "Because we're holding them to maturity, we will anticipate that we'll have zero losses over time."

laweijfmvo 3y ago
Same was true for SVB, except their customers got freaked and SVB couldn't raise enough liquidity in time -- I've heard they could have, had the Fed not closed for the day or something. So likely the Fed wouldn't let something similar happen to BoA.
- paxys 3y ago
  If you are implying that BoA is in trouble if there is a bank run then yes, that applies to every bank in existence regardless of the circumstances. Considering their size, AUM and customer diversification (none of which worked in SVB's favor), there is a very low risk of that happening in this case.
  - chrisgd 3y ago
    Also, SVB filed to raise equity capital thereby saying to the market they needed to raise money and we’re trying to do so. They could have been selling some of those liquid bonds at a discount and taking gaap losses.
  - rich_sasha 3y ago
    Most BoA deposits are likely guaranteed since they come from private persons and are below the limit. So a run is far less likely even if they are / get in trouble.
    - jarym 3y ago
      This is true. The shock effect would be large across markets however.

josh_carterPDX 3y ago

To those suggesting that BofA be broken up because they are considered "too big too fail" should watch one of the many movies that cover the 2008 financial crisis. There are also some really good documentaries. Our government decided that the banks needed to consolidate in order to be more stable then enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which was put in place to "promote the financial stability of the United States." If you really want to ensure banks don't go through this again I would encourage you to call your elected officials to make sure they not just protect the Dodd-Frank act, but to expand the way it helps to protect consumers from banks being shady.

lp0_on_fire 3y ago
> Our government decided that the banks needed to consolidate in order to be more stable then enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which was put in place to "promote the financial stability of the United States." Our government decided to do what was best for the banks and the bankers. Meanwhile millions of people lost their homes and some have never recovered. Those that caused the problem were rewarded with golden parachutes and a comfy retirement. I am not keen to see that repeated and will support a primary challenger to any politician (of any party) that suggests it's time for "Too big to fail Part 2: even bigger". Let's hope it doesn't get there.

calderwoodra 3y ago

Yep, their unrealized losses on securities are high but they also have a huge inflation hedge position and have been increasing their reserves to survive a bank run. Compare this to SVB which had neither, and the headline seems much less alarming.

boringg 3y ago

Issue arises if: (1) People panic and force a drawdown ->> need to sell those securities (2) US Govt doesn't repay its debt likely the result of the right wing intransigence fighting over debt ceiling authorization.

deleted 3y ago
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SilasX 3y ago
It’s not a “panic” when customers move their money to other banks that can actually afford to pay market rates of interest. Rather, it’s prudent financial management.

m3kw9 3y ago

Bond paper losses (unless the bond issuer defaults) are like opportunity costs if you let it mature.

mugivarra69 3y ago

lmao, no hedge?

sdfghswe 3y ago

BoA: nothing to see here despite us having $131bn in losses. Also BoA: wanna buy my 6.55% bonds?

userinanother 3y ago

For anyone that doesn’t understand why this is a problem take this example: In 2020 you might have bought 10year 50k ECB bonds yielding 0–.5%. But in 2023 you need to buy a car for 50k. You don’t have to sell your bonds at a loss but you will have to borrow the 50k at 7% to pay for the car so the loss will happen anyway every month you pay 7% and earn 0%

pjfin123 3y ago

> Keeping securities until maturity also gives it the flexibility to avert mark-to-market losses. They're still losses even if you don't mark them to the market. I think the next round of bailouts there is going to be a lot more corporate bond buying and subsidized borrowing by banks against bonds at par value.