U.S. banks have moderated their pace of securities portfolio restructurings, yet targeted trades persist, often driven by mergers and acquisitions, according to S&P Global Market Intelligence.
The pandemic-era strategy of investing in long bonds with cheap deposits exposed banks to risks when interest rates increased. Consequently, banks have been reclassifying securities and selling underwater assets to enhance liquidity, capital, and earnings profiles.
Key highlights from the analysis include:
- Mergers and Acquisitions Influence Restructuring: In 2025, many securities restructurings are tied to banks that completed mergers; nine out of 17 publicly traded banks discussing restructurings had whole-bank deals this year, focusing on shedding low-yield portfolios and reinvesting in higher-yield assets.
- Impact of Federal Reserve Policies: Banks parked excess liquidity in long-duration Treasuries during COVID. As the Fed tightened policy, the market value of these securities fell, leading to significant unrealized losses. By late 2024, banks had repositioned but continue to manage losses and rebalance for better income and liquidity.
- Decline in HTM Securities: HTM securities fell for the 10th quarter, reaching $2.172 trillion (38.2% of total securities) as of June 30. Larger banks saw median HTM securities drop from 71.7% in Q3/22 to 52.2% as they shift to higher-yielding short-term AFS securities.
- Reduction in Unrealized Losses: Implied unrealized losses on HTM securities decreased to $222.82 billion in Q2, down from $230.71 billion and significantly lower than the Q3/23 peak of $334.60 billion. AFS losses also moderated to $76.15 billion but remain high.
- Future Outlook and Strategy: With the Fed’s rate cut easing pressure on yields, banks are less likely to face forced sales. The focus on higher yields and lower duration exposure continues, with regional banks expected to engage in opportunistic sales and reinvest in shorter-duration, higher-yielding assets.
