A concern wafting through some corners of Wall Street, which has recently reached me, centers on Bank of America, our second largest bank, with some $3.5 trillion in assets—and in particular, what appears to be $136 billion of unrealized losses on its balance sheet. Those unrealized losses, which show up on the bank’s third-quarter 2023 financial statements, dated September 30, and filed with the Securities and Exchange Commission, represent more than 70 percent of the bank’s tangible book value and derive mostly—$132 billion of the $136 billion, to be precise—from potential losses in the bank’s portfolio of what it calls “held-to-maturity debt securities.” 

These are assets that Bank of America holds on its balance sheet without any intention of selling. Rather, the bank just hopes to continue to get the quarterly interest payments and the payoff of the debt at maturity. These assets include more than $474 billion of mortgage-backed securities issued by federal agencies and some $121 billion of U.S. Treasuries and other government agency debt. According to the Bank of America calculations, its trove of mortgage-backed securities is only worth $367 billion these days, or 77 cents on the dollar, while its $121 billion of Treasuries and other U.S. government debt is only worth $98 billion, or 81 cents on the dollar. 

These discounts are, hopefully, much less about credit risk than changes in the interest rate environment. Bank of America likely loaded up on these bonds when interest rates were much lower; so if they had to sell them, these are the kinds of losses the bank would face on the portfolio. The key words here, of course, are if they had to sell them.