US Banks Face $395.3 Billion in Unrealized Losses in Q2 2025, Problem List Reaches 59

U.S. banks recorded a substantial $395.3 billion in unrealized losses on investment securities during the second quarter of 2025, according to recent data from the Federal Deposit Insurance Corporation (FDIC). This figure represents the 13th consecutive quarter of such losses, largely attributed to the sustained period of elevated interest rates. Financial commentator The Kobeissi Letter emphasized the magnitude of this situation, stating, "This is ~6 TIMES higher than at the peak of the 2008 Financial Crisis."

These unrealized losses occur when the market value of securities, primarily fixed-income assets like government bonds, falls below their purchase price but has not yet been sold. While not immediately impacting a bank's cash flow if held to maturity, they can create liquidity challenges if banks are compelled to sell these assets prematurely. Rebel Cole, Ph.D., a finance professor at Florida Atlantic University, highlighted the broader economic impact, noting that banks have "about $6 trillion tied up in these securities that are losing money, preventing them from making new loans." This constraint on lending can affect consumers and businesses.

The FDIC's Quarterly Banking Profile for Q2 2025 confirmed the $395.3 billion in total unrealized losses, which represents a decrease of $17.9 billion (4.3%) from the previous quarter, as some low-yielding securities matured. Despite this slight decline, the FDIC acknowledges "elevated unrealized losses" as an ongoing challenge for the banking sector. The problem is exacerbated for banks that might need to sell these assets to meet liquidity demands, thereby realizing the losses and potentially impacting their capital.

Concurrently, the number of institutions on the FDIC’s "Problem Bank List" decreased slightly to 59 in Q2 2025, down from 63 in the first quarter. These banks, identified with significant financial or operational weaknesses, represent 1.3% of all FDIC-insured institutions, which falls within the typical non-crisis range of 1% to 2%. The FDIC maintained that the banking industry "continued to have strong capital and liquidity levels," yet it underscored the necessity for ongoing supervisory attention due to weaknesses in certain loan portfolios and the persistent unrealized losses.