Identifying and Analyzing the Risks of ‘Risk-Free’ Securities

September 13, 2023

Identifying and Analyzing the Risks of ‘Risk-Free’ Securities

September 13, 2023

Unmasking the Hidden Risks: How a Deeper Dive into 'Risk-Free' Securities Could Have Saved Banks - A Must-Read for Financial Decision-Makers!

The article discusses the importance of thoroughly assessing the risks associated with seemingly "risk-free" debt securities and the implications for financial institutions. It highlights that interest rate increases can lead to unrealized losses for held-to-maturity debt securities, which may not be immediately reflected in financial statements, potentially distorting investment decisions. The example of Silicon Valley Bank's failure due to rising interest rates devaluing its bond investments is cited. The article outlines three levels of financial analysis, emphasizing the need for a deeper understanding of the economic nature of bond investments to assess various risks such as credit, liquidity, value, interest rate, and concentration risk. It also explains the different accounting classifications for debt securities: trading, held-to-maturity (HTM), and available-for-sale (AFS). Moreover, it emphasizes the importance of disclosing key risk information related to debt securities, especially for financial institutions. The article points out that relying solely on the "risk-free" designation for Treasury and Agency debt securities can be misleading, as these securities possess other risks beyond default risk. The impact of rising interest rates on financial institutions is discussed, focusing on the management of interest rate spreads and the devaluation of HTM investments. The article mentions that many stakeholders primarily focused on default risk and failed to consider other risks like interest rate, concentration, and liquidity risk, which were apparent from note disclosures. It concludes that assessing risks beyond the financial statements is crucial for a more comprehensive evaluation of bank asset and equity values, as highlighted by recent bank failures and market value declines. For more information click the link!

https://www.journalofaccountancy.com/issues/2023/sep/identifying-and-analyzing-the-risks-of-risk-free-securities.html

FPA Executive Tax Brief Issue 011 covering tax deadlines, tariff refunds, per diem rates, farmland
September 29, 2026
FPA Brief 011 covers the Kwong appeal, IEEPA tariff refunds, Oct. 1 per diem rates, Section 1062 farmland sales and proposed CFC ownership rules.
Executive tax planning for September 2026 deadlines, manufacturing costs, trade and construction pro
September 21, 2026
FPA Brief 010 covers Michigan's Sept. 30 FTE deadline, Canadian import restrictions, LIFO planning, new IRS penalty relief and data center tax incentives.
FPA Executive Tax Brief Issue 009 covering estimated taxes, bonus depreciation, manufacturing proper
September 14, 2026
FPA Brief 009 covers the Sept. 15 tax deadline, 100% bonus depreciation, Section 168(n), permanent Opportunity Zones and the shift from GILTI to NCTI.
FPA Brief 008 covers Rev. Proc. 2026-32, Section 174A R&D, Section 987 CFC relief, BOI reporting and
September 7, 2026
FPA Executive Tax Brief Issue 008 covering construction accounting, Section 174A R&D, Section 987, BOI reporting and energy tax incentives.
FPA Executive Tax Brief Issue 007 covering Section 163(j), IRIS, Opportunity Zones, Section 45X and
September 1, 2026
FPA Brief 007 covers Section 163(j), the FIRE-to-IRIS transition, Opportunity Zones 2.0, Section 45X sourcing rules and September estimated taxes.
Executive tax and trade planning for semiconductor manufacturing, real estate, workforce benefits
August 24, 2026
FPA Brief covers conservation easement enforcement, polysilicon tariffs, the Section 48D deadline, Trump Account employer contributions and Canada trade retaliation.
FPA Executive Tax Brief Issue 005 covering overtime reporting, international tax compliance, manufac
August 17, 2026
FPA Executive Tax Brief 005 covers overtime reporting, Form 5472, manufacturing costs, the $32M contractor threshold and 2026 Opportunity Zone gains.
August 10, 2026
FPA Executive Tax Brief 004 covers paid-leave credits, Canadian tariffs, R&D reporting, residential contract accounting and IRS Business Tax Account updates.
FPA Executive Tax Brief Issue 003 covering tariffs, international tax, manufacturing facilities, Opp
August 4, 2026
FPA Executive Tax Brief 003 explains new tariffs, NCTI, production-property expensing, Opportunity Zone guidance, and proposed IRS reforms.
FPA Executive Tax Brief Issue 002 covering tax developments affecting construction, manufacturing,
July 28, 2026
The FPA Executive Tax Brief covers this week's most important developments affecting construction, manufacturing, real estate, and international businesses