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Congressional ____
SA Research Service
Banks' Unrealized Losses, Part 2:
Comparing to SVB
September 1, 2023
Part 1 of this two-part Insight discusses a new proposed rule that would require all banks with over $100
billion in assets to include unrecognized gains and losses on available for sale (AFS) debt securities (via
the inclusion of accumulated other comprehensive income [AOCI]) in capital. Part of the motivation for
the proposal is the role that unrealized capital losses played in the failure of Silicon Valley Bank (SVB) in
2023.
Under the Fed's enhanced prudential regulatory (EPR) framework, SVB elected not to include AOCI in
common equity Tier 1 (CET1). Although SVB qualified as well-capitalized under capital rules in 2022, its
capital was rapidly depleted in the days before its failure when it sold securities that had fallen in value at
a loss to meet large and sudden deposit outflows. According to the Fed's report on SVB's failure, had
EPR requirements not been changed following P.L. 115-174, SVB would have become an Advanced
Approaches bank subject to AOCI requirements in the second quarter of 2020. Had SVB been subject to
this requirement (as an Advanced Approaches bank or under the new proposal), the Fed estimates that
SVB's potential losses would have been reflected in its CETi earlier, as its CETi value would have fallen
by $1.9 billion (1.7 percentage points) at the end of 2022.
Comparing SVB to Other Large Banks Subject to the
Proposal
SVB had unrealized losses on its securities primarily because rising interest rates caused their value to
fall-an issue affecting all banks, as discussed in part 1. As Figure 1 illustrates, some banks subject to the
proposed rule had large unrealized AFS losses as a percentage of CETi at the end of 2022, and some
banks would have come close to falling below the 6.5% CETi ratio required to be well capitalized if
unrealized losses were subtracted from their CET1.
SVB was unusually vulnerable to unrealized losses, however. According to the Fed, SVB's total securities
holdings as a share of total assets (55%) were more than double its peers. According to Federal Deposit
Insurance Corporation Vice Chair Travis Hill, SVB invested more than half of its assets in long-term
Congressional Research Service
https://crsreports.congress.gov
IN12232
CRS INSIGHT
Prepared for Members and
Committees of Congress](ViewImageLocal?handle=hein.crs/govemse0001&div=1&collection=&method=preview&ext=.png&size=3)
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