Unrealized losses in U.S. banks’ investment securities portfolios showed little change at the end of the second quarter of 2025, according to an analysis by Rebel Cole, Ph.D., a finance professor at Florida Atlantic University. The aggregate unbooked losses on these securities declined by $17 billion from the first quarter ($414 billion) to the second quarter ($397 billion). The slight decrease was attributed mainly to sales of securities rather than changes in their value, as long-term Treasury Bond rates saw only a minor drop from 4.25% on March 31 to 4.23% on June 30.
Cole noted that about $6 trillion is tied up in these loss-making securities, which affects banks’ ability to provide new loans. “The largest consequences are that these banks have about $6 trillion tied up in these securities that are losing money, preventing them from making new loans,” Cole said. “This chokes off the availability of credit from these banks for making loans to consumers, businesses, and anyone else they lend to. The banks cannot sell those securities without realizing these losses, so they are losing money, making it more difficult for them to originate new loans.”
Data from the U.S. Banks’ Unrealized Losses on Investment Securities screener indicated that only one relatively small bank reported losses greater than its Common Equity Tier 1 (CET1) equity during the second quarter, down from two such cases in the first quarter of 2025 and compared with previous quarters where more institutions were affected. Sixteen banks reported unbooked losses equal to at least half of their CET1 capital, down from 24 in the prior quarter and 34 in late 2024.
Of the 4,477 reporting banks for this period, Cole focused his calculations on those with over $1 billion in assets—totaling 1,049 institutions—to assess unrealized losses relative to CET1 capital. He explained how different regulatory approaches affect loss calculation: while most banks can opt out of including certain unrealized losses in their regulatory capital figures, larger or “advanced approach” banks must include them.
If a bank loses half its CET1 capital due to such unrealized losses, regulators may require actions like raising new capital or merging with another institution; severe cases could result in closure by federal authorities.
Cole also commented on broader concerns for banking stability: “Investors are well aware that it’s unlikely this situation will get better,” he said. “This is only one issue facing banks, as interest rates are also impacting the commercial real estate exposures for banks. It’s one leg of a three-legged stool that keeps getting shorter.”
