Troubled Banks in 1991 Were 25 Times Worse Than Now

From a comment by "stilettoheels" on this CD post:

Yep. The commercial banks are in just fine shape. Bottom line: In Q3.08, the banks are back to the early 1990s recession by most measures. Once the early 1980s are taken out, then it will be the Great Depression II.

The top chart above shows the number of FDIC "problem institutions" annually back to 1990 (year to date for 2008). There are currently 171 problem banks, which is higher than the peak of 136 problem banks in 2002 following the 2001 recession, but far fewer than in the earlier years like 1990 (1,496 troubled banks), 1991 (1,430), 1992 (1,066), 1993 (575), 1994 (318) and 1995 (193).

The 171 banks currently identified as "problem institutions" have assets of $116 billion, which is 1.04% of the total commercial bank assets of $11,115 billion average for 2008, and only 0.97% of total bank assets of almost $12,000 billion for October 2008 (data here). The bottom chart above shows that the current level of about 1% of bank assets being held by troubled banks is nowhere close to the levels of 10-25% in 1990, 1991, 1992 and 1993. So by this measure, troubled banks in the early 1990s were 10 to 25 times "more troubled" than banks today.

Bottom Line: In 1990 there were almost 9 times as many troubled banks as today, and in 1991 the percent of total bank assets held by troubled banks was about 25 times higher than 2008. We're nowhere close to the troubled bank situation of the early 1990s. As in 25 is a much bigger number than 1, and 1 is nowhere close to 25. And if we're not even close to the weak banking conditions of the early 1990s, we're light years from Great Depression II.

Q.E.D.

Comments

[BxCapricorn:]

The last time we met the Professor, he was telling us that if you took away CA, NV, FL, and MI, the housing numbers shown this summer, weren't that bad. Before that, I remember him calculating the World Market capitalization at $63T (back in Dec 2007) and concluding that the $500B subprime write down (turned out it was $1-2T, leveraged ten fold) wouldn't do much to the World's economic growth. It was just this big ol' train that could not be slowed down. We were all making mountains out of molehills. But, like the Professor on Gilligan's Island, he could tell you it's a radio, but you can see that it's really two coconuts cut in half, and that he's really just talking to himself. Now he's been asked by "Drill, Drill, Drill" economic lunatics (like Kudlow) to get out there and try to convince everyone that bank defaults aren't a problem...um...use the sheer number of them compared to other periods of time. Yeah, that's the ticket! So what if they have been propped up by $8T of various loans, programs, capital injections and other shenanigans. Every time you post, I can literally count one Mississippi, two Mississippi, right up to around three months, and then the wheels fall off. Sheila Bair asked for the cash from Paulson because she just saw her troubled bank list START to go parabolic. With the Alt A mortgage refinancings starting to peak right now, just count the number of days that defaults become foreclosures, under various State rules, and this kind of Pollyannish statistical voo-doo will look hilarious, at that future time.

2008 Dec 01 02:36 AM

[Steven Hansen:]

what has changed since 12sep2008?

seekingalpha.com/artic...

2008 Dec 01 03:39 AM

[socrateazz:]

What are troubled assets? Has the definition changed? Why are those banks who are problems have them? Are the situations the same today as twenty years ago? Are we at the begining of a growing problem being compared to the worst of the financial problem from late eighties? Apples need to be compared to apples not olives! A few banks in trouble could be ignored. There are real economic problems which were no where as great in the current society. The Trade deficit is much worse. Wealth in US dollars in foriegn hands is exploding. And with deflation that is even worse. Most commodity producers are heavily in debt and could not handle an extended below cost period as has been common the last twenty years. I expect real food shortages are possible because production costs are close to or below current return. There are a lot of unoccupied buildings out there. Who will fill them? Then will builders go back to building soon? Government is taking too many resources for too little actual help. Unions will soon destroy all non-controled union bussinesses. Unions will become the bastions of government and controled companies like ports. They can not continue to exist unless they are protected by mob like groups. Education is moving toward brainwashing and propaganda. One can tell because they try to force all to believe their beliefs. Too many real problems with too few people willing to make the changes needed. I suspect Obama will make some superficial changes. Real change will require a deeper recession. But odds are, we are on our way to that situation. I think two to three more years before the real result will be felt.

2008 Dec 01 03:44 AM

[leh:]

Agree with BxCapricorn that this guy's work seems as worthwhile as a cartload of dung. Unbelievable.

2008 Dec 01 08:56 AM

[Ferdinand E...:]

Not worse than now, but 25 TIMES WORSE THAN NOW! I wonder what I would do if one of my students were to make a claim like that. I mean, what would I do after I failed that student and my head stopped spinning.

Professor Ferdinand E. Banks (Fred)

2008 Dec 01 09:15 AM

[Bill Jencks:]

"....we're light years from Great Depression II."

I am sad and sorry that Mr Perry has solely focused on just the financial bank crisis in the above economic judgement. I have to say, I hope your right. But I really think not. In delivering such a sweeping judgement, I think you forgot the following :

1. The current dollar status, inherent weakness and volatility. Currently this currency is wide open to damaging currency plays by China, which could cripple and bankrupt America, sending its currency into hyperinflation. It has recently been reported that China will be spending $586 billion on their own Bailout. Bye the way - that money is being spent from her dollar currency reserves. Pretty ironic, wouldn't you say ? And what will the effect be when all those reserve dollars come home to roost ?

2. A rather large Fiscal Debt of about $60 trillion that US govts have tended to ignore over many years. Keynesian economics would be inappropriate and foolish here, wouldn't it ? Current government borrowing is already over the top, wouldn't you say ?

Perhaps all this rather limits the economic tools available to cure this financial problem. And maybe the over-practice of Consumerism with excess Debt is to blame ? How do you cure this economic habit ?

Austrian School Economics ? ....Ouch !!

....Just a couple more reasons you may wish to ponder.

2008 Dec 01 09:37 AM

[Paul Killinger:]

Keep it up, guys. Your doom and gloom scenarios for our future have convinced me we've already put in a bottom.

We're lucky, actually. This financial contagion could have been much worse than it is considering the debt follies that took place.

Now your new Prez will restructure our economy and taxes to ensure there's nothing but blue skies ahead. Just what you wanted.

2008 Dec 01 10:10 AM