U.S. banks are sitting on nearly half a trillion dollars in unrealized losses, which could set off a domino chain if the economy goes south, according to Apollo Asset Management.
Data from the Federal Deposit Insurance Corporation (FDIC) shows unrealized losses climbed to $482.4 billion in Q4 2024, a 32.5% increase from the prior quarter.
Apollo chief economist Torsten Slok warned that the situation could get out of hand if the U.S. enters a period of stagflation, a dreaded combination of rising prices, rising unemployment, and slowing growth.
“In a stagflation scenario, the risk is that rates will be higher for longer and credit losses will begin to accumulate, particularly among lenders to tech, growth, and VC, where borrowers often have no earnings and low coverage ratios,” said Slok.
Analyst Samantha LaDuc added, “Sadly, today’s gap up in markets won’t fix this,” referencing a rebound in stocks after the Trump administration announced a new trade deal with China.
Sadly, today's gap up in markets won't fix this.
undefined Samantha LaDuc (@SamanthaLaDuc) May 12, 2025
Per FDIC, the banking sector is currently holding almost $500 billion in unrealized losses on investment securities.
undefinedIn a stagflation scenario, the risk is that rates will be higher for longer and credit losses will begin to… pic.twitter.com/xHxj9fQhQg
The issue hasn’t rattled markets yet because these losses don’t appear on income statements unless the investments are sold, according to former Fed staffer Rebel Cole.
“All it takes is one bad news story about any of these banks, and we could have another banking crisis like we had in March 2023,” said Cole.
Rebelling bond market behind the surge
At the height of the 2023 banking crisis, U.S. banks were sitting on $684 billion in unrealized losses.
Experts say that level could be tested again if long-term interest rates continue to rise, driving down the value of long-dated Treasuries and mortgage-backed securities.
Stanford finance professor Amit Seru warned that banks begin to face “serious problems” when the 10-year Treasury yield exceeds 4.5%.
His comments echo an April 17 report from Investors Observer that pegged 5% on the 10-year as the market’s “capitulation point,” a level that could force the Trump administration to shift its economic messaging to calm bond investors.
Yields have surged again recently, with the 10-year returning to 4.5% — up over 30 basis points since the end of April.
Analysts blame the move on so-called bond vigilantes: investors demanding higher yields in response to the Trump administration’s proposed tax cuts, which are expected to widen the deficit.
Deutsche Bank noted that the last time yields reached these levels, Trump officials were forced to soften their trade-war stance to avoid further market fallout.
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