§ 01
| Classification | Balance Sheet | Unrealized Gains/Losses | Key Risk |
|---|---|---|---|
| Trading | Fair value | Income statement (every quarter) | Earnings volatility |
| Available-for-Sale (AFS) | Fair value | Other Comprehensive Income (OCI) | Hidden in equity section |
| Held-to-Maturity (HTM) | Amortized cost | Completely ignored | Invisible losses if forced to sell |
§ 02
HTM accounting was at the center of the Silicon Valley Bank collapse in 2023. SVB loaded its HTM portfolio with long-duration bonds at low rates. When rates rose, enormous unrealized losses were invisible on the financial statements — until depositor withdrawals forced sales and the hidden losses crystallized instantly.
§ 03
Look up a major bank in **Fundamentals**. Find the investment securities footnote — compare amortized cost to fair value for the HTM portfolio. The difference is the unrealized loss that does NOT appear on the income statement.
§ 04
A bank holds $500M in HTM bonds now worth $430M. It reports healthy net income. Is there hidden risk?
§ 05
§ 06
A bank classifies bonds as 'Held to Maturity' (HTM). 2022 rate shock: bond prices fall 20%. How does this appear on the balance sheet vs. the Available-for-Sale (AFS) alternative?
Five questions · AI feedback
Sit with the ideas.
A bank holds a $500M bond portfolio classified as HTM. Due to rising interest rates, the portfolio's fair value has declined to $430M. The bank reports healthy net income and passes its regulatory capital requirements. Is there a hidden risk?
Why: