Research / BFI Working PaperApr 25, 2023

Bank Fragility and Reclassification of Securities into HTM

Held-to-Maturity (HTM) accounting allows banks to avoid using current market prices to value securities on their balance sheet. During 2022, the HTM portfolios of U.S. banks grew from $2 to $2.75 trillion while their overall holdings of securities remained constant at $6 trillion. U.S. banks transferred $.9 trillion to their HTM portfolios by relabeling securities as HTM. Accounting rules determine that banks must have not only the intent but also the ability to hold securities to maturity when using HTM accounting. I find that banks with lower capital ratios, higher share of run-prone uninsured depositors, and more exposed to interest rate risks were more likely to reclassify securities to HTM during 2021 and 2022.

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