US banks seize chance to transfer securities from HTM to AFS - Risk.net (2024)

FAQs

US banks seize chance to transfer securities from HTM to AFS - Risk.net? ›

The update came into force for most banks on January 1, 2023, and permitted a one-off reclassification of HTM debt securities as AFS within 30 days of adopting the guidance, as long as they were covered by a hedge. Such a practice would not be allowed under normal circ*mstances.

Bonds the banks plan to sell need to be classified as available-for-sale securities and accounted for at fair market value. If banks sell any HTM securities, they must reclassify all of their HTM securities as available for sale and potentially take a big loss on the securities they didn't sell.

An entity that transfers AFS debt securities to HTM should refer to the disclosure requirements of ASC 220-10-50-5 and 320-10-50-9(d), which might require separate disclosure of the impacts in the statement of comprehensive income.

HTM securities are held until they mature. AFS securities are sold before they mature. The former is recorded at cost minus impairment, the latter is recorded at fair value.

Most banks hold local securities as a service to their community. The aggregate of such holdings should be reasonable relative to the capital structure of the bank.

The HTM restrictions would be gradually restored from 23% to 19.5% beginning with the quarter ending June 30, 2024, the RBI stated. The RBI raised the cap on securities that can be included in the HTM category from 22% to 23% in April 2022.

First, they can use interest rate derivatives that may be designated and qualify as fair value hedges of the interest rate risk of their fixed-rate AFS securities. 20 In contrast, hedges of the interest rate risk of fixed-rate HTM securities cannot qualify for hedge accounting under ASC 815- 20-25-12d and 15f.

The update came into force for most banks on January 1, 2023, and permitted a one-off reclassification of HTM debt securities as AFS within 30 days of adopting the guidance, as long as they were covered by a hedge. Such a practice would not be allowed under normal circ*mstances.

the beginning of the accounting year; investments from AFS to HFT may be done with the approval of the Board/ALCO/Investment Committee; shifting from HFT to AFS is generally not allowed.

The investment portfolio of banks is classified under three categories, viz., 'Held to Maturity (HTM)', 'Available for Sale (AFS)' and 'Held for Trading (HFT)'. Banks normally hold securities acquired by them with the intention to hold them up to maturity under HTM category.

Did SVB sell AFS or htm? ›

To meet the withdrawals, SVB had to sell bonds. Consequently, the bonds could no longer be considered HTM. Instead, they had to be categorized as “available for sale” (AFS), meaning (a) the bonds were marked down on SVB's financial statements and (b) actual sales caused the losses to be crystalized.

HTM securities can be pledged or used as collateral in a Repo and, in this manner only, provide an FHLBank with a source of secondary liquidity.

Held to maturity securities bite into the company's liquidity. Since companies make the commitment to hold these securities until maturity, they cannot really count on these securities to be sold if cash is needed in the short term.

Furthermore, HTM securities can be repoed out to the market in exchange for cash at any time. If there are obstacles to doing so, regulators (and FASB, if the problem lies there) should remove them.

Banks were expressly permitted to buy and sell securities, including equities, at the order of customers for their accounts. Banks were also allowed to purchase some types of debt securities for their own portfolios and to underwrite Treasury issues and general obligation bonds of state and local governments.

That authority is restricted by limitations on percentage holding of classes of securities as found in 12 CFR 1.3. That regulation allows banks to deal in, underwrite, purchase, and sell Type I securities without limit, and Type II securities limited to 10 percent of its capital and unimpaired surplus.

Selling securities removes money from the system, raises rates, makes loans more expensive, and decreases economic activity.

No. A reporting entity can only make its one-time election to sell or transfer (or to both sell and transfer) eligible HTM debt securities as of a specific date in the reporting period.

Improved Liquidity and Risk Argument

The money received is used to offer other borrowers loans, including subsidized loans for low-income or at-risk borrowers. In this way, an MBS is a liquid product. Mortgage-backed securities also reduce risk to the bank.