FDIC Quarterly Banking Profile
The below paragraph is from the FDIC’s Quarterly Banking Profile. Investors may latch on to the fact that unrealized losses declined across the banking industry from the September quarter to the December quarter as was the case with Bank of America when it reported results on January 12th. Our guess is that unrealized losses have increased from December 31st to today given that yields are higher.
Banking unrealized losses are likely higher today given that Treasury yields are higher than they were at the end of December after Powell talked yields down on December 13th.
It is in the Banking sector’s best interest for the Fed to take interest rates down. The banks own the Fed and have great influence over it. J.P. Morgan, BofA, Citi and Wells take market share in an environment like this when banks lose deposits to money market funds and Treasuries. However, at some point the unrealized losses become too great and force even the large banks to pull back on lending. I believe that this is what happened in early December. I believe that BofA CEO Brian Moynihan got in Powell’s ear before the Fed’s December 13th FOMC meeting, and Powell prematurely became a super dove on the 13th.
The million dollar question is, when will BofA (BofA carries the most unrealized losses of all FDIC banks) cry “no mas” and push Powell to lower rates? We will have a better idea as to the state of the banking industry later this month once the BTFP expires on March 11th. We should see Fed Discount window borrowings ramp in the days and weeks after March 11th as banks that need liquidity will no longer have the BTFP bailout facility to borrow from.