On 28 July 2023, the European Central Bank (ECB) published the results of a standalone data collection exercise it conducted jointly with the European Banking Authority in Q2 this year on unrealised losses of significant institutions under its direct supervision. The purpose of the exercise was to enhance the ECB’s assessment of risk in the held-to-maturity portfolios of euro area banks and further its monitoring of interest rate risk and liquidity risk. The data collection exercise shows that euro area banks under ECB supervision held around 73 bn EUR of net unrealised losses in their bond portfolios in February 2023. In the short term, losses calculated under current and stressed market conditions would materialise only in the unlikely event that banks had to sell such securities.

The ECB explains that unrealised losses are the difference between the carrying amount and fair value of debt securities at a given date. Net losses also include adjustments stemming from hedges. They are not recognised in banks’ profit and loss statements or balance sheets because of their different accounting treatment resulting from a longer investment horizon. In the short-term, losses would materialise only in the unlikely event that banks had to sell such securities. Notably, even in distressed market conditions, banks are unlikely to sell such securities outright and would rather raise liquidity through other channels such as repo transactions with other banks or a central bank.