[TonyLima]

PSA: Twitter no longer allows content to be seen by opening a link without logging in. So if you want people who don't have Twitter accounts to see what you are referring to on Twitter, you must embed tweets on this board like so:

[tweet]https://twitter.com/BossBlunts1/status/1675201131088150528[/tweet]

Great tip!  Thanks.

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It's only a loss if they sell now.  Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Hoo boy, is that wrong. Mark to market requirement depends on myriad regulations. Each coutry gets to have their own set.

Right. Banks hold bonds in a "mixed measurement model" consisting of two accounts:

  (1) AFS or "Available For Sale". These are bonds that are available to be sold and must be valued at Mark-to-Market, per FASB 157.
  (2) HTM or "Held to Maturity" (sometimes referred to as "Hide to Maturity"). These bonds, not available for sale, are held to maturity and are amortized instruments. The loss goes unrealized until the maturity date. BofA's unrealized securities loss at the end of Q3 was $131.6 billion, up from $106 billion at the end of Q2, so...not so good.

Bank of America's unrealized losses on securities rose to $131.6 bln in Q3

As for the AFS vs. HTM accounts, I think that dates from FASB decisions made shortly after the financial crisis in 2010. I used to work with Bob Herz, a partner at PwC, who became FASB's chair -- also a dead ringer for Paul Giamatti. Bob was an absolute champion for market value. He resigned when FASB -- under political pressure -- retreated from Herz's proposal to require all financial instruments to be valued at market value on the balance sheet.

Another relevant Financial Accounting Standards Board (FASB) Statement 115, summarized here: Summary of Statement No. 115.

With respect to eliminating HTM status, it isn't for lack of trying. Institutional investors were hoping FASB would address it at their December, 2023 meeting, but wasn't to be. And because I know you don't get to read enough about accounting:

FASB Decision Not to Consider Eliminating Held-to-Maturity for Debt Securities Disappoints Investor Advocates

The incredible diversity of experience and expertise in these parts never ceases to amaze me.  One of my graduate fields was monetary theory.  I knew some of the above, but not the details.  Thank you.

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https://twitter.com/BossBlunts1/status/1...1088150528

Bank of America facing the devaluation and illiquidity of $100B in US bonds. In the previous charts I posted, their exposure was the highest among the big four banks.

On a separate note, worldwide adoption of quantitative easing will potentially collapse the German central bank, causing inflation and economic instability while a war rages nearby. France and now Belgium are dealing with rioting. Interesting times.

Idiotic German economic policies are already wrecking their economy.  The collapse of the Bundesbank will hasten an inevitable event.

[TonyLima]

PSA: Twitter no longer allows content to be seen by opening a link without logging in. So if you want people who don't have Twitter accounts to see what you are referring to on Twitter, you must embed tweets on this board like so:

[tweet]https://twitter.com/BossBlunts1/status/1675201131088150528[/tweet]

Great tip!  Thanks.

---

It's only a loss if they sell now.  Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Hoo boy, is that wrong. Mark to market requirement depends on myriad regulations. Each coutry gets to have their own set.

Right. Banks hold bonds in a "mixed measurement model" consisting of two accounts:

  (1) AFS or "Available For Sale". These are bonds that are available to be sold and must be valued at Mark-to-Market, per FASB 157.
  (2) HTM or "Held to Maturity" (sometimes referred to as "Hide to Maturity"). These bonds, not available for sale, are held to maturity and are amortized instruments. The loss goes unrealized until the maturity date. BofA's unrealized securities loss at the end of Q3 was $131.6 billion, up from $106 billion at the end of Q2, so...not so good.

Bank of America's unrealized losses on securities rose to $131.6 bln in Q3

As for the AFS vs. HTM accounts, I think that dates from FASB decisions made shortly after the financial crisis in 2010. I used to work with Bob Herz, a partner at PwC, who became FASB's chair -- also a dead ringer for Paul Giamatti. Bob was an absolute champion for market value. He resigned when FASB -- under political pressure -- retreated from Herz's proposal to require all financial instruments to be valued at market value on the balance sheet.

Another relevant Financial Accounting Standards Board (FASB) Statement 115, summarized here: Summary of Statement No. 115.

With respect to eliminating HTM status, it isn't for lack of trying. Institutional investors were hoping FASB would address it at their December, 2023 meeting, but wasn't to be. And because I know you don't get to read enough about accounting:

FASB Decision Not to Consider Eliminating Held-to-Maturity for Debt Securities Disappoints Investor Advocates

The incredible diversity of experience and expertise in these parts never ceases to amaze me.  One of my graduate fields was monetary theory.  I knew some of the above, but not the details.  Thank you.

---

https://twitter.com/BossBlunts1/status/1...1088150528

Bank of America facing the devaluation and illiquidity of $100B in US bonds. In the previous charts I posted, their exposure was the highest among the big four banks.

On a separate note, worldwide adoption of quantitative easing will potentially collapse the German central bank, causing inflation and economic instability while a war rages nearby. France and now Belgium are dealing with rioting. Interesting times.

Idiotic German economic policies are already wrecking their economy.  The collapse of the Bundesbank will hasten an inevitable event.