The majority of US banks again saw sequential improvements in accumulated other comprehensive income and adjusted tangible common equity in the first quarter.

Questions about industry liquidity began swirling in the first quarter after two regional bank failures in March, which included one company selling securities at a loss prior to its bank unit's failure. Now, accumulated other comprehensive income (AOCI), which captures changes in the value of banks' available-for-sale securities portfolios and tangible common equity (TCE), a measure of physical capital that is used to evaluate a financial institution's ability to withstand potential losses, are a heightened focus of both investors and regulators alike.

The industry posted another quarter of AOCI improvements in the first quarter, with total losses of $283.31 billion from losses of $326.17 billion and $347.99 billion in the fourth and third quarters of 2022, respectively.

The improvements come after a year of rapidly rising interest rates, which led to a surge in AOCI losses for many banks. The rapid pace of interest rate hikes forced most banks' bond portfolios underwater, particularly for institutions that reached further out on the yield curve to pick up additional income when rates were near historic lows.

All of the 20 largest US banks by total assets at March 31 posted a quarter-over-quarter improvement in AOCI in the first quarter, compared to just 15 banks in the fourth quarter of 2022.

The largest US bank by total assets, JPMorgan Chase & Co., reported the largest AOCI improvement and the second-largest TCE improvement quarter over quarter.

Next in line was Bank of America Corp. Its AOCI improved to a loss of $18.53 billion, a quarter-over-quarter increase of $2.63 billion, while its adjusted TCE increased by $18.00 billion, to a balance of $108.51 billion.

Adjusted TCE improved for nearly all of the 20 largest banks. Only one bank, Goldman Sachs Group Inc., saw a quarter-over-quarter decline in adjusted TCE, with a $609 million decline to a balance of $96.05 billion.

While the majority of banks posted sequential improvements in AOCI, the majority still have higher losses than they did one year ago. Only 152 banks saw improved year-over-year AOCI.

Year-over-year TCE trends were mixed, with about half of US banks posting a decline and half seeing improvement.

Regulatory picture

Unrealized losses in securities portfolios became a sharper focus after the recent failures of three regional banks. Now, regulators are mulling expanding the universe of banks that must include those unrealized losses and gains on securities portfolios in their capital ratios. Currently, only global systemically important banks are required to do so.

Last week, Federal Deposit Insurance Corp. Chairman Martin Gruenberg voiced support for such a move for banks with more than $100 billion in assets, saying that if Silicon Valley Bank was required to recognize its unrealized securities losses in its capital the company "might have averted the loss of market confidence and the liquidity run. That is because there would have been more capital held against these assets."