The recovery in global banks’ balance sheets is under threat from a surge in bond yields, according to senior bank executives and analysts preparing for the quarterly earnings season.
Banks have built huge portfolios of liquid securities, partly at the behest of regulators and also because they have not found better opportunities to lend a flood of deposits. Under new rules, unrealised losses in these “available for sale” portfolios hit banks’ equity capital.
“I would think most institutions are going to have a fairly sizeable hit to their equity,” said a senior executive of a top US bank. “You’ve really had this concentrated one to two week period where all hell is breaking loose.”
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