Regulators and government officials have called for calm following this month’s major bank failures, while insisting the US financial and banking system is stable. But even as the dust begins to settle after weeks of bank stock turmoil, the crisis is far from over as bank assets may still be in trouble, according to some experts. There is a possibility.
“Financial stress problems, liquidity crises, bank runs, etc. can be stopped. Will the capital problems facing the US banking system go away? . bloomberg Thursday.
As depositors at government-protected Silicon Valley and signature banks, as well as other bank stocks that were highly volatile a few weeks ago, seemingly stabilized, fears of a more overt contagion slumbered. may have been ripped off. But that doesn’t mean the financial system is still secure. Banks still have trillions of dollars in unrealized losses.
“I think you’ve opened a Pandora’s box, with huge unrealized losses remaining on bank balance sheets,” Misra said. If banks face balance sheet problems and start worrying about being in a strong financial position, it could trigger the dreaded credit crunch that economists and government officials have been warning about for weeks.
“again [banks are] We’ll have to cut assets, raise capital, or a combination of both, and that will affect our lending standards,” she said.
An unrealized loss is a paper loss that affects a bank asset that has fallen in price but has not yet been sold, ‘recognizing’ that the value of the asset has decreased. The unrealized loss was one of the culprits behind his SVB collapse that year. SVB announced in early March that he expected a loss of $1.8 billion on the sale of the investment.
SVB was plagued with mismanagement issues, including the lack of an official Chief Risk Officer for the eight months leading up to its bankruptcy. However, many if not most other banks may face similar problems. According to a New York University paper released this month, unrealized losses for U.S. banks may have totaled $1.7 trillion by the end of last year.
Misra said tightening lending standards would likely hit the economy, but it was unclear when that would happen and which markets and sectors would be hit hardest. The rapid contraction of consumer savings, which has served as a guardrail against recessions for months, could increase the likelihood of a recession coming soon, he added.
“That savings buffer is getting smaller. This is exactly the time banks should lend. He added that it “will definitely result in a hard landing” for the economy.