Banks are No Longer Failing

It has been over a month since Cerent released their contrarian report on the "credit crisis." You had a preliminary look at that report when reading, "No Credit Crunch (For Most Banks.)"

According to the FDIC, no additional banks have failed since that report. Zilch, Nada, None.

Why have failures ceased? Because only a few big banks placed irresponsible banking bets based on complex "paper instruments." Those convoluted contracts and certificates are still not completely understood by those who created them or those who bought them. (Don't even try to read or understand them. They are what most conservative bank leaders call "junk.")

More importantly though, several of those large banks that were about to fail, got bailed out by the government. Those that were unable to get rid of the their "junk" in exchange for federal assistance, failed.

click all charts to enlarge

Source: Cerent



Source: USA Today

Most of the drama charted above took place in October, November, and the first week in December 2008. But thanks to the swift policy action on behalf of the Federal Reserve, the US Treasury, and other governments and world banks, the US bank failures have ceased. (See the total list of FDIC failed banks.)

The even better news continues to be backed up by the Fed's own current data:

- Overall lending by US banks is at a record high and has increased...


- Consumer credit is at record highs and also has increased during the "crisis..."


- Deposits at all banks continues to increase....


- Loans by banks to businesses continues to grow rapidly.


And a quick glance at any daily trade publication shows that commercial paper markets are now back to operating within their normal ranges as are the municipal bond markets.

Let's call this debacle what it was: A crisis of the elite banks and their failed leadership. Most governments have now bailed them out.

The rest of the banks and their fine leadership are doing well. I for one will continue to trust such leadership with my personal bank deposits.

Comments

[District Ba...:]

Silly article.

Big banks were failing for different reasons than community banks. The community banks that have failed did so (generally) because they made big bets on real estate in their (confined) market footprint. When things go sour in their local economy, it doesn't take much to drag the bank down. If you don't believe me, ask yourself why we've had clusters of failures in particularly weak geographic areas (GA, FL, etc).

Community banks are no longer failing for two reasons. Either:

1. The government gave them TARP $ to fortify their balance sheets and try to attract deposits or,

2. Because of the tax change regarding NOLs in acquisitions, it is now FAR more attractive to buy a failing franchise than it was prior to the tax code change.

Jan 13 10:16 AM

[secmaven:]

So the prosperity returning to the financial sector is why BAC is now down to eleven and change?

Jan 13 04:29 PM

[Misha:]

Let’s see what you were saying before:

December 26, 2008: “…US department stores reported record numbers of shoppers…” “I am sure you'll read about retail gloom elsewhere…” And everyone but you was right.

January 01, 2009: “Unemployment's Surprisingly Large Drop.” "…The majority is always wrong." And so are you. I will use you as a contrarian indicator: When you turn negative, I will go long.

January 13, 2009: “Banks are No Longer Failing.” Great call!

I can keep going but there is no point. You are clearly a broken clock.

Apr 26 03:36 PM