The last time we looked at [3]the impact of the ongoing rates blow out on banks' "available for securities" books, we found the biggest monthly drop in unrealized gains, which dropped by $24 billion in the one month in which interest rates surged by 100 bps. Nonetheless, the cumulative net unrealized number was still positive at $6 billion (down from over $43 billion). A cursory look at the most recent H8 statement shows that as a result of the recent secondary blow out in rates which threatened to take the 10 Year to 3%, the damage has continued, and as of August 21 [4]the formerly net profit has turned into a net loss of ($16) billion. The is the most negative the AFS number for the commercial banks operating in the US, has been since late 2009.
[5]
How long before the rapidly shrinking unleveraged capitalization buffer is noticed by the Fed's "stress test"
desk, and forces Bernanke (or replacement) to order banks to raise a
matching $50 billion in equity to regain their former capitalization? And how long before someone questions the perverted logic behind FAS 115 [6] which continues to allow banks to bury all these billions in losses under the rug.