*= Q4 2022 numbersĪs you can see, if AOCI were incorporated into bank CET1 ratios at the end of the first quarter, more than half of these banks would see their capital ratios fall under their current regulatory requirements. Adjusted CET1 includes provisions for accumulated other comprehensive income. The chart below looks at bank CET1 ratios at the end of the first quarter taking AOCI into account as well as their regulatory capital requirements to show what their excess capital position would have looked like at the end of the first quarter. These losses can be seen through a line item called accumulated other comprehensive income (AOCI). Investors are now looking at what these bank CET1 ratios would look like with the AFS unrealized losses added in. Currently, these unrealized losses and gains are not incorporated into the CET1 ratios of super-regional banks.

AFS bonds are those a bank intends to sell prior to maturity. The CET1 ratios are a key capital ratio at banks that look at their core capital expressed as a percentage of their risk-weighted assets such as loans. Super-regional banks with assets between $150 billion and $700 billion are also bracing for more-stringent regulatory capital requirements that could force them to incorporate unrealized bond losses in their available-for-sale (AFS) bond portfolios into their common equity tier 1 (CET1) capital ratios. This dynamic is one of the main culprits that led to deposit runs at most of the banks that failed recently. Then, as deposits started to flow out of the system, investors got worried that banks would have to sell bonds while they traded at a loss to cover deposit outflows, which would destroy shareholder equity. One factor that contributed to the bank failures that occurred earlier this year is that banks loaded up on longer-term, low-yielding bonds too early in the cycle.Īs interest rates soared between March 2022 and now, these bonds got crushed because bond values and bond yields have an inverse relationship. Let's look at which super-regional bank is in the best capital position, according to reported numbers at the end of the first quarter.

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