After four consecutive quarters of shrinking losses, the US banking sector just hit rewind. Unrealized losses on securities held by American banks climbed back to $325.1 billion in Q1 2026, snapping a recovery streak that had brought the figure down to its lowest level in years.

The reversal is particularly frustrating because things were genuinely improving. In Q4 2025, unrealized losses had fallen to $306.1 billion, the lowest mark since Q1 2022. That represented a $31 billion reduction, or 9.2%, from the prior quarter alone.

Now, a $19 billion jump in a single quarter has put that progress in question.

How the banking sector got here

US banks held enormous portfolios of Treasury securities and mortgage-backed securities, classified as either available-for-sale (AFS) or held-to-maturity (HTM). AFS securities get marked to market each quarter, meaning losses show up on financial statements. HTM securities don’t get marked to market, but the unrealized losses still exist.

At their worst, unrealized losses across the banking system surpassed $600 billion, according to FDIC data. By the end of 2024, the figure had moderated to roughly $482.4 billion to $483 billion. Q2 2025 saw losses at $395.3 billion. By Q3, they had dropped to $337.1 billion, a decline of $58.2 billion, or 14.7%, quarter-over-quarter. Q4 brought them down further to $306.1 billion.

Rising long-term yields are the culprit

The $19 billion reversal traces directly to rising longer-term Treasury yields. When 10-year and 30-year yields climb, the fair value of bonds with lower coupon rates falls. Banks holding large portfolios of Treasuries and mortgage-backed securities are particularly exposed to this dynamic.

These are unrealized losses — banks haven’t actually sold these securities at a loss. If they hold them to maturity, they’ll get back the full principal. The problem is what happens between now and maturity. If a bank needs liquidity, or if depositors start withdrawing funds faster than expected, those paper losses become very real, very quickly.

That’s precisely what brought down Silicon Valley Bank in March 2023. SVB was forced to sell underwater bonds to meet deposit outflows, crystallizing billions in losses and triggering a bank run that spread contagion across the regional banking sector.

Here’s the thing: $325.1 billion is still well below the $600 billion-plus peak. The structural recovery driven by maturing securities hasn’t stopped. But the Q1 2026 data is a reminder that this process isn’t linear, and that the interest rate environment still has the power to set the banking sector back quarters in a single move.