Ask the Fed: A Discussion of Unrealized Losses at Community Banks in a Rising Interest Rate Environment 

Market interest rates have risen in 2022 at a pace not experienced in a generation. In this current environment, a bank may have unrealized holding gains and losses excluded from earnings, but report accumulated other comprehensive income (AOCI) for unrealized losses on its available-for-sale (AFS) securities portfolio. As a result, a bank may experience a dynamic change in its balance sheet, arising from the devaluation in its bond portfolio and lower or negative tangible common equity.

Please join Governor Michelle Bowman, Senior Vice President Tara Humston, and Manager Brett Leavell as they discuss the Federal Reserve’s supervisory posture for a bank with falling bond portfolio values and low or negative tangible common equity. This session will also attempt to answer the question—what can a bank do now to address the risks associated with low or negative tangible common equity?

Presenters

Michelle Bowman, Governor, Federal Reserve Board of Governors

Tara Humston, Senior Vice President, Federal Reserve Bank of Kansas City

Brett Leavell, Manager, Federal Reserve Bank of Kansas City