When does all the underwater treasuries banks are holding come to roost? The fed blessing every underwater treasury at full value can't actually work as a solution, can it? They can't liquidate those treasuries, so they're stuck with them for the lifetime of the bond (unless rates drop dramatically). As commercial real estate loans go bad, those illiquid treasuries can't be used to meet obligations. How many banks are zombie banks (functionally insolvent but still taking deposits)?