Banks are sitting on $500 billion in unrealized losses, and stagflation could cause another Silicon Valley Bank-like crisis

1 month ago 6

Greg McKenna

Wed, May 14, 2025, 10:05 AM 6 min read

Banks got caught “chasing yield” and took large losses erstwhile the Federal Reserve dramatically hiked involvement rates to combat inflation. Those losses are inactive hanging around, and respective experts told Fortune galore halfway issues from the 2023 banking situation airs a continued menace to the strategy if economical conditions deteriorate.

Just implicit 2 years aft the collapse of Silicon Valley Bank and First Republic, banks are inactive taking large losses acknowledgment to precocious involvement rates. That’s origin for large concern, respective experts told Fortune, particularly if President Donald Trump’s tariffs pb to the dreaded operation of “stagflation,” oregon rising ostentation coupled with slowing growth, putting further unit connected lenders.

U.S. banks held $482.4 cardinal successful full unrealized losses connected securities investments astatine the extremity of 2024, according to Federal Deposit Insurance Corporation data, an summation of $118 billion, oregon 32.5%, from the erstwhile quarter. That fig had risen to $515 cardinal erstwhile SVB fell unfortunate to a slope tally successful March 2023 and peaked astatine $684 cardinal aboriginal that year. Data for the archetypal 4th of 2025 is expected aboriginal this week, but April’s spike successful enslaved yields means immoderate reprieve successful the archetypal 3 months of the twelvemonth was apt short-lived.

These unrealized losses don’t amusement up connected a bank’s income connection unless the assets are sold, but they correspond a looming menace to liquidity if depositors get spooked, said Rebel Cole, a concern prof astatine Florida Atlantic University who worked for a decennary successful the Federal Reserve System.

“All it takes is 1 atrocious quality communicative astir immoderate of these banks, and we could person different banking situation similar we had successful March of [2023],” Cole, who has served arsenic a peculiar advisor to the International Monetary Fund and World Bank, told Fortune. “I’m amazed we haven’t had 1 since then.”

View this interactive illustration connected Fortune.com

There’s an casual mentation for the illustration above: When semipermanent involvement rates spike, the worth of assets similar likewise long-dated U.S. indebtedness oregon residential mortgage-backed securities declines.

Bank losses fundamentally person been fluctuating with the benchmark 10-year Treasury yield, Cole said, which has been connected a chaotic thrust successful 2025 amid the Trump administration’s chaotic tariff rollout. It presently sits supra 4.5%, approaching its precocious successful the 4th quarter.

At that level, the banking strategy starts “seeing superior problems,” Amit Seru, a concern prof astatine the Stanford Graduate School of Business, said successful an email connection to Fortune.

“It becomes rather atrocious astatine 5%,” added Seru, a elder chap astatine the university’s Hoover Institution, a conservative-leaning deliberation tank.