The last time we looked at the impact of the ongoing rates blow out on banks’ “available for securities” books, we found the biggest monthly drop in unrealized gains, which dropped by $24 billion in the one month in which interest rates surged by 100 bps. Nonetheless, the cumulative net unrealized number was still positive at $6 billion (down from over $43 billion). A cursory look at the most recent H8 statement shows that as a result of the recent secondary blow out in rates which threatened to take the 10 Year to 3%, the damage has continued, and as of August 21 the formerly net profit has turned into a net loss of ($16) billion. The is the most negative the AFS number for the commercial banks operating in the US, has been since late 2009.
How long before the rapidly shrinking unleveraged capitalization buffer is noticed by the Fed’s “stress test”
desk, and forces Bernanke (or replacement) to order banks to raise a
matching $50 billion in equity to regain their former capitalization? And how long before someone questions the perverted logic behind FAS 115 which continues to allow banks to bury all these billions in losses under the rug.