It is said that banks’ market-value losses on loans have been going up at the same rate as interest rates.
The Wall Street Journal (WSJ) reported Friday that 97% of a sample of publicly traded US banks said that the market value of their loans was less than their balance-sheet amount as of Dec. 31, 2022. (April 7).
According to the report, the drops have been caused by rising interest rates, which have also hurt the value of banks’ securities.
But market-value losses on loans are less well known than losses on securities, according to the report. This is because market-value losses on loans must be calculated from the securities filings of publicly traded banks, while market-value losses on securities are counted by regulators across the industry.
The 435 banks that were used as a sample for the WSJ report had loan losses of $242 billion that had not yet been taken into account. According to the report, these same banks had loans whose fair value was $96 billion higher than their carrying amount a year earlier.
The report says that when the value of loans goes down, it could hurt banks’ earnings or liquidity and force them to pay higher rates for deposits.
The Consumer Financial Protection Bureau (CFPB) put out new rules on March 30 that will make banks and other lenders collect more information about business loan applicants.
Lenders who give out more than 100 small business loans a year would have to collect and analyze demographic, geographic, and other types of data.
Days earlier, the CFPB said states could continue extending disclosure laws covering business lending as long as they did not conflict with the federal Truth in Lending Act.
“After analyzing public comments on its preliminary determination, the CFPB affirms there is no conflict because the state laws extend disclosure protections to businesses and entrepreneurs that seek commercial financing,” the CFPB said March 28.
On March 27, regulators and banks expressed alarm about “shadow lending” from private equity firms, retirement funds, and insurers.
A further inquiry will determine where the risk went after banks’ balance sheets and the danger to banks from buyout firm loans.
