U.S. Capital Markets Glide Path to Clearer Skies

Many banks loaded up on treasuries and MBS Funding risk depends on how each bank invested/managed these and on their concentrations

$5,000

10 12 14 16 18

58% growth in Treasuries and mortgage-backed agency securities since Jan 2020

Rapidly rising interest rates (that began in March 2022) triggered an abrupt decline in the underlying value of these securities

$4,000

$3,000

0 2 4 6 8

$2,000

$1,000

$0

Jan-73

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Commercial Bank Assets: Treasury and Agency Securities, (Billions, LHS)

10-Yr Treasury Yield (%, RHS)

• Although the banking system at large increased holdings of Treasury and MBS securities, they represented 17% of assets prior to the pandemic and reached only 21% at their peak. Since then, they have receded to about 19% of assets. • In the case of SVB, for context, these securities represented ~55% of assets – this level is widely considered a gross over-concentration and representative of mismanagement. • Most banks have significantly less exposure relative to their total assets.

22

Source: Federal Reserve