How US banks can wiggle out of the $650 billion balance-sheet bomb hanging over them

• US banks are sitting on an estimated $650 billion in unrealized losses on their bond holdings.
• The surge in interest rates over the past 18 months drove bond prices lower, leading to bank failures earlier this year. 
• Here’s why banks have flexibility in making sure that their $650 billion balance sheet bomb is defused. 

US banks have a ticking time bomb sitting on their balance sheets to the collective tune of at least $650 billion, but it will likely be defused rather than explode.

The banking sector, which has been rocked by five bank failures this year, has to grapple with the ramifications of buying trillions of dollars worth of low-yielding Treasury bonds prior to the start of the Federal Reserve’s aggressive interest rate hiking cycle. Because bond prices fall as yields rise, the value of these holdings has plummeted since the Fed started hiking rates.