Are disclosures of “unrealized losses” on bank balance sheets next?

By Wolf Richter for WOLF STREET.

Acting Chairman of the FDIC Board of Directors, Travis Hill, who was sworn in as FDIC Vice Chairman on January 5, released a statement today, along with the materials of the quarterly report by the FDIC on the FDIC-insured banks, that the FDIC would no longer disclose as of today the total assets on its “Problem Bank List.”

The list had previously shown total assets and the total number of banks on the Problem Bank List. As of today, it only shows total number of banks on the Problem Bank List, forget the assets.

This sudden end of the disclosure is a problem because a jump in assets on the list used to indicate that a bigger bank had gotten on the list, something we’d need to start paying attention to, and now we don’t know if a bigger bank has gotten on the list. We just see the total number – 66 banks in Q4 2024, according to the FDIC today. This is what the FDIC’s chart used to look like through Q3 2024.

In the chart above, by jump in the gold columns in Q4 2021, we could tell that a bigger bank had gotten on the Problem Bank List as assets of Problem Banks spiked. Then, in 2022 SVB went to hell for all to see and finally imploded in Q1 2023, followed by ultimately two other banks. We didn’t know which banks had gotten on the list, but we knew something was going on with one or more bigger banks. And people guessed rightly or wrongly. Now we won’t see that anymore.

And this is what the FDIC’s Problem Bank List chart looks like today. Q4 2024 is the first time since 1990 that total assets of Problem Banks are not disclosed. The gold columns now represent the number of banks (which used be indicated by the black line), and the total assets data (used to be the gold columns) has vanished:

In the statement, Hill addresses the irony of this act: “Upon becoming Acting Chairman, I issued a statement that noted the FDIC would ‘expand transparency in areas that do not impact safety and soundness or financial stability.’”

That disclosure of total assets of Problem Banks didn’t “impact safety and soundness or financial stability” from 1990 through Q3 2024. And now it suddenly does, and the disclosure gets nixed?

Are “unrealized losses” on bank financial statements next?

Sure, he gave four reasons why this suddenly was necessary:

When a large bank ends up on the list, the public might identify which bank that is – or wrongly identify a bank that is not on the list – and start yanking its money out, “prompting a disorderly run,” he said.

So, that could have happened, but what prompted the run on SVB was the disclosure on its financial statements of its unrealized losses on its holdings of Treasury securities and MBS, and its total dependence on big uninsured deposits by well-connected depositors. So, will the disclosure of unrealized losses on bank balance sheets be next?

He added another reason: “Supervisors fail to downgrade a large bank in poor condition for fear the disclosure could spark a bank run and/or financial instability.” But financial statements of banks could and did spark bank runs, so just replace bank financial statements with bank PR statements full of pap and bullshit? Is that next? To avoid “disorderly runs?”

And he added another reason: “A large bank is downgraded for reasons other than deteriorating financial condition (which, as a general matter, occurs regularly), prompting customers to withdraw funds out of misplaced fear of insolvency.”

Forced disclosures of sins, and fears of the consequences of these disclosures, are part of what is supposed to keep banks from doing stupid things. The purpose of these disclosures is to impose some discipline on banks and bank CEOs; and if they do stupid things, allow markets and depositors to punish them. And the fear of that punishment is supposed to keep banks from doing stupid things. That’s what disclosures are all about. And doing away with these kinds of disclosures isn’t going to make the banking system stronger.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how: