Data Analysis: Banks at Risk Despite Declining Interest Rates

A close up view of a bank

Banks across the United States are facing increased pressure from exposures to unrealized losses and commercial real estate despite a slight decline in interest rates, according to screeners from the Banking Initiative at ��Ƶ.

By amber bonefont | 1/9/2025

Of the 155 largest banks in the country, 59 banks have exposures over 300% in the third quarter of the year, down from 62 banks the previous quarter. Despite the decline, these banks are still at increased risk of regulatory enforcement actions from federal regulators , according to

“The aggregate exposures to commercial real estate to equity capital decreased slightly in the third quarter of the year from 138% to 132%, as banks are under tremendous pressure to offset these losses,” said , Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in ��Ƶ’s . “Banks are not in the clear as their unrealized losses are susceptible to interest rates which, after falling from a recent high of 4.50% to a low of 3.60% on Sept. 17, have risen back above 4.50%.”

The Banking Initiative, comprised of three screeners, examines banks’ exposures to unrealized losses from investment securities, exposures to commercial real estate, and liquidity risk from uninsured deposits to measure the stability of the country’s banking system.

According to the , among the 1,033 banks with more than $1 billion in assets, 11 banks had unrealized losses greater than 50% of their capital equity, down from 47 banks the prior quarter. However, the decline in long-term interest rates was responsible for this decrease, and long-term rates have risen significantly since Sept. 30, likely reversing any gains during Q3. Regarding liquidity risks, 89 out of 1,033 banks with more than $1 billion in assets reported a 50% or higher ratio of uninsured deposits to total deposits, according to the .

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Data Analysis: Banks at Risk Despite Declining Interest Rates

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