Securities & Investments
AFS Unrealized Losses
Also known as AFS Unrealized Loss
AFS unrealized losses are the mark-to-market losses on a bank's available-for-sale securities. Unlike HTM losses, they are recognized. They flow through accumulated other comprehensive income (AOCI) and reduce book equity each period the securities are underwater.
How is AFS Unrealized Losses calculated?
AFS securities are marked to fair value on Schedule RC-B. The unrealized gain or loss is carried in AOCI within total equity capital on Schedule RC, so it directly moves reported equity even before any security is sold.
Why does AFS Unrealized Losses matter?
AFS unrealized losses are the recognized cousin of HTM losses: they already sit in equity. For Category I and II banking organizations, which cannot opt out of AOCI, they also reduce regulatory capital, making AFS the conduit through which interest-rate moves hit the capital ratios directly.
How do you interpret AFS Unrealized Losses?
Measure the AFS loss against equity and against the bank's AOCI election. Smaller banks that opted out of including AOCI in capital keep their capital ratios insulated, but their tangible book value still falls. A deep AFS loss plus heavy uninsured deposits is the combination that signals run risk.
What do AFS Unrealized Losses levels indicate?
| Range | Label | Interpretation |
|---|---|---|
| Small mark | Benign | Limited AOCI drag on equity. |
| Moderate | Normal | Recognized loss within a comfortable capital cushion. |
| Large vs. equity | Watch | AOCI losses materially reducing tangible equity. |
| Capital-threatening | Concern | Mark-to-market losses straining regulatory or tangible capital. |
Worked example
Frequently asked
Do AFS unrealized losses reduce regulatory capital?
For Category I and II banking organizations (the US G-SIBs and firms with $700 billion or more in assets or $75 billion or more in cross-jurisdictional activity), yes. They cannot opt out of including AOCI in CET1. Other banks, including Category III and IV firms, may elect to exclude AOCI, shielding their capital ratios even though book equity still falls.
How are AFS and HTM unrealized losses different?
AFS losses are recognized in AOCI and reduce equity now. HTM losses are disclosed but not recognized, so they stay off the balance sheet. The economic loss is the same; only the accounting treatment differs.
Sources
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