Banking Analytics: Unrealized Losses Decrease Again at U.S. Banks

The ratio of unrealized losses to total securities held by U.S. banks declined again in the second quarter of 2025, to 6.8%. That was down significantly from its recent peak of 12.2% in the third quarter of 2023. (See the figure below.) While these potential losses are not as large as they were several years ago, they remain a risk factor for some banks.

Banks hold securities—primarily fixed-rate Treasuries and mortgage-backed securities—for a variety of reasons. As liquid assets, they can be sold quickly to bolster bank balance sheets and cover credit losses or deposit outflows. They also serve as a source of bank income, supplementing what’s earned on loans. Unrealized losses are “paper” losses, so banks don’t lose money unless they sell the underlying securities prior to maturity.

U.S. Banks’ Unrealized Gains and Losses on Investment Securities as a Percentage of Their Securities Holdings

SOURCES: Consolidated Reports of Condition and Income (Call Report) and authors’ calculations.

Many banks loaded up on long-term investment securities during the COVID-19 pandemic, when deposits were plentiful and loan demand and yields were weak. When interest rates began rising in the spring of 2022, the value of banks’ securities holdings declined, in some cases dramatically. This resulted in growing unrealized losses, the difference between the purchase price and the current market value of investments when the market value is lower. The failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023 can be traced, in part, to the sharp rise in unrealized losses in their investment portfolios.

Short-term interest rates declined in late 2024 due to three reductions in the Federal Reserve’s federal funds rate target, taking some of the pressure off banks’ investment portfolios. But long-term rates—especially the 10-year Treasury rate and the average 30-year mortgage rate—have not followed suit, so unrealized losses have remained large.