Tariffs Threaten Double Blow to Small US Banks
Unrealized securities losses combined with recession hits to loans looms from a toxic policy cocktail.
A timeline depicting the failure of Silicon Valley Bank displayed during a House Financial Services Committee hearing on May 17, 2023.
Photographer: Bloomberg/BloombergInflation and weak growth are a bad mix for anyone, but especially for banks and even more so for smaller US banks still carrying heavy losses on fixed-rate bonds. President Donald Trump’s attacks on global trade and his deficit-boosting budget are on course to expose just how painful this combination could be and to revive a problem that many thought lenders had dealt with.
Unrealized losses on Treasuries and mortgage bonds became a big worry for lenders during 2022 and 2023 when sharp interest-rate rises helped to spark a handful of failures led by Silicon Valley Bank. Now, bond yields are rising again as fears of a recession grow, too. Market-value losses on securities combined with real hits from commercial property debt or small-business loans would be nasty.