Part 4/10:
Funding Risks: The report underscores concerns about sudden funding losses—a critical issue in banking stability. Specifically, it references the failures of banks in March 2023 as a warning sign of how unrealized securities losses can threaten bank solvency. Such losses arise when banks hold securities that decrease in value but are not yet sold, creating a hidden risk if liquidity dries up.
Capital Shortfalls: Many banks, particularly smaller and midsize ones, are facing challenges due to these unrealized losses, especially in commercial real estate (CRE). As of the second quarter, massive exposure to CRE loans—especially in sectors hit hard by high interest rates and office vacancies—are creating mounting credit risk.