Silicon Valley Bank part II starts tomorrow at 6:45am | Schiff Sovereign

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Abstraction: Bank of America hiding $100B+ bond losses via HTM reclassification echoes SVB collapse

Key points:

SVB failed because rising Fed interest rates caused its US government bond portfolio to lose value; bonds — normally considered the safest assets — fell 23% in value from 2020 levels, an unprecedented decline
Bank of America reclassified 83% of its bonds from Available for Sale (AFS) to Hold to Maturity (HTM) — up from 17% HTM in 2015 — to avoid reporting $100B+ in unrealized losses on its balance sheet
HTM bonds do not require reporting market-to-market losses; the reclassification is legal but obscures capital impairment of roughly half Bank of America's ~$200B total capital
The broader US banking system has over $500 billion in aggregate bond losses; the FDIC's Deposit Insurance Fund and the Federal Reserve (with ~$1 trillion in bond losses) are similarly affected
The author categorizes this as a "Gray Rhino" — a highly visible, predictable risk that is nonetheless ignored, contrasting with the "Black Swan" of COVID-19
Smaller banks are cited as relatively safer because they did not accumulate large government bond portfolios

Connections: Silicon Valley Bank · Bank Of America · Federal Reserve · Financial Risk · Gray Rhino