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Bank of America’s securities portfolio showed more than $100 billion in unrealized losses in the third quarter of 2023 because market interest rates had risen sharply since many of the bonds were purchased. The marks represented declines in market value, not an immediate cash loss or proof that the bank was insolvent. The risk would become more acute if deposit withdrawals or other funding needs forced the bank to sell before maturity.
What happened to Bank of America’s bond portfolio?
Reuters, reporting on Bank of America’s third-quarter filing on October 17, 2023, said the bank had $131.6 billion in unrealized losses on securities. The bank’s Q3 2023 Form 10-Q, filed with the Securities and Exchange Commission on October 31, provides the portfolio classifications, fair-value information, accumulated other comprehensive income and interest-rate disclosures behind the headline.
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| Measure | Q3 2023 figure | Context |
|---|---|---|
| Unrealized losses on securities | $131.6 billion | Reuters’ account of Bank of America’s filing, October 17, 2023 |
| Securities classified as held to maturity | About $603 billion | Down from about $614 billion in Q2 2023, according to Reuters |
| Net income | $7.8 billion | Associated Press report on third-quarter earnings, October 17, 2023 |
| Net interest income | $14.4 billion | Associated Press report on the same quarter |
The size of the mark does not mean Bank of America paid out that amount in cash. It means the securities would have fetched less in the market at the end of the quarter than their accounting or purchase values, largely because newer bonds offered higher yields.
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Why do higher rates lower the value of existing bonds?
Fixed-rate bonds generally move in the opposite direction from market yields. When investors can buy newly issued bonds at higher rates, an older bond with a lower coupon becomes less attractive. Its market price must fall far enough to offer a comparable return to a new buyer. The SEC’s investor bulletin notes that the price effect is greater for bonds with longer duration, because more of their expected cash flows arrive further in the future.
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Bank of America accumulated substantial securities during the low-rate period. The Federal Reserve’s tightening cycle then lifted Treasury and other market yields, reducing the fair value of those older holdings. Senator Elizabeth Warren described the situation in a September 13, 2023 letter to the Financial Stability Oversight Council as the bank having “racked up over $100 billion of losses from money it poured into bonds three years ago.” That was a political characterization; the accounting figure reported from the bank’s filing is the unrealized amount shown above.
How can the bank lose money without selling the bonds?
Unrealized versus realized losses
An unrealized loss is a mark-to-market decline while the security remains in the portfolio. If the bond is held and ultimately pays its scheduled principal at maturity, the holder can avoid realizing that interim price decline, assuming the issuer pays and the bank does not need to sell. A realized loss occurs when the bank sells below its carrying or purchase value, turning the paper decline into an actual reduction in proceeds.
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Held-to-maturity and available-for-sale accounting
| Classification | How it is generally accounted for | Why it matters |
|---|---|---|
| Held to maturity (HTM) | Debt securities the bank states it has the intent and ability to hold until maturity are generally carried using amortized-cost accounting rather than continuously marking changes through earnings. | Market-value declines can remain largely outside current earnings while the bank holds the securities, but the assets still have less value if they must be sold or pledged in stressed conditions. |
| Available for sale (AFS) | These securities are marked to fair value. Unrealized changes generally flow through accumulated other comprehensive income rather than ordinary net income. | The marks can affect reported equity and, depending on regulatory rules and the institution’s treatment, capital measures even when no sale occurs. |
The exact balances, fair values and accumulated other comprehensive income effects are set out in Bank of America’s Q3 2023 Form 10-Q. A headline that combines HTM and AFS marks without identifying the category can therefore give a misleading impression of how the loss affects earnings or capital.
Are these paper losses like the losses that helped bring down Silicon Valley Bank?
The mechanism is similar: both situations involve fixed-income securities losing market value as rates rise. The decisive question is what happens next. If a bank has stable funding and can hold the securities until maturity, the mark need not become a cash loss. If depositors withdraw money quickly and the bank cannot raise other funding, it may have to sell securities at depressed prices, crystallizing losses and potentially creating a confidence spiral.
Comparing Bank of America with another bank requires more than lining up a single headline number. Analysts need to align the quarter and accounting basis, then examine:
- unrealized versus realized losses;
- the mix of HTM and AFS securities;
- duration and average coupon, which indicate sensitivity to further rate moves;
- deposit stability and available liquidity;
- the effect on tangible and regulatory capital; and
- the ability to hold securities until maturity.
A large unrealized figure alone does not establish that two banks face the same solvency or liquidity risk.
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Will depositors be at risk?
The reported mark did not by itself mean depositors were unable to withdraw funds. The practical risk is liquidity: a bank may be forced to sell bonds before maturity to meet withdrawals or other obligations. That sale can turn an unrealized decline into a realized loss. A bank that can fund withdrawals through deposits, borrowing or asset liquidity while retaining its bonds has more time to wait for principal repayment.
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What happens if interest rates stay high?
Persistently high yields can keep the market values of older, lower-coupon bonds below their purchase prices for as long as those securities remain outstanding. The unrealized mark may shrink as bonds approach maturity, because prices converge toward the amount of principal due, provided the issuer pays. Selling earlier would lock in the prevailing market price.
High rates also have an offsetting income effect. Banks can earn more on loans and on newly purchased assets, although funding costs and deposit pricing rise too. That is why Bank of America could report strong quarterly profit and net interest income in the same period that its securities carried a very large paper loss. Profitability and the market value of a bond portfolio are related to the rate cycle but are not the same measurement.
How should investors read the headline?
Read “over $100 billion in losses” as a description of unrealized securities marks in the third quarter of 2023, not as a statement that the bank paid out that amount or lost that amount of cash. Then ask which securities produced the mark, how much was HTM versus AFS, whether the bank has dependable liquidity, and how the valuation changes flow into equity and regulatory capital. Those details determine whether the number is primarily an accounting valuation issue or a sign of pressure that could force asset sales.
Do these 3 things before closing this tab:
1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsBank of America remained profitable in Q3 2023, while rising rates simultaneously reduced the market value of bonds bought in the low-rate era. The two facts can coexist because interest income is earned over time, whereas a bond’s market price changes immediately when required yields change.
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