Banks No Longer in Crisis Mode

Do our banks still have problems? Yes. But are the top banks still in crisis? No.

You've read here consistently that even when the big banks seemed insolvent, there was no credit crisis at most banks. In fact the data now shows that according to the Federal Reserve, overall business lending by all US banks was up 12 percent in 2008. That actually reverses a trend where lending institutions scaled back loans during the last six economic downturns. Surprisingly a new report by the National Federation of Independent Businesses reveals that only 8 percent of small businesses reported problems in obtaining the financing they needed during this current downturn.

On Saturday Arianna Huffington described the peak of the "crisis" well:

"When we castigate 'bankers' for the banquet of greed and corruption, we need to keep in mind that we are really talking about the high-flying financial gluttons of Wall Street who have come to dominate the global credit market, and not the vast majority of much smaller, and much more local 'traditional' banks."

Furthermore, Edward Yingling, president and CEO of the American Bankers Association, asserts:

"Wall Street and Main Street banking are very different. Of the over 8,000 banks in this country, very few ever made a single subprime loan, and they did not engage in the highly leveraged activities that brought down Wall Street firms." You'll remember all those banks that said, "TARP? No Thanks!"

But now enter data from the last three weeks. Are those top banking entities struggling any longer? No. Are they racing each other to pay back their TARP obligations? Yes. Will the majority pass stress tests? No doubt.

The stress test regulators will likely find there is no need to fix what now is not broken. Top bank liquidity has returned. Ironically what the bank giants are revealing during this earnings season is that the low cost of money from the government combined with a surging demand for new mortgages was all the medicine that was required.

And for all those who love to hate the government programs of the past 6 months, Paulson, Geithner, and Bernanke got it just right.

Comments

[default1:]

Commercial real estate problem will make sub-prime look like peanuts.

Apr 19 02:46 PM

[Prudent Man...:]

It would be the first time in history that an economy returned to equilibrium by printing money and issuing debt. We don't even know where equilibrium is.

Where Bernanke made his mistake is going along with the Goldman Sach's lackeys, Paulson, Geithner, Rubin, et al, who gave the Congress the momentum to steal all of the money they can and fund every campaign contributor piggy bank they can because the Administration just wants the economic control to kill the Free Enterprise System.

Anyone who believes this economy is going to return to where it was a few years ago wasn't around in the seventies when the U.S. was a much more important economic power and not nearly in as much debt as now per capita. It took nearly ten years and the best president we have had in my life time, of which there have been 13.

Apr 19 03:08 PM

[mikesa69:]

To the unnamed author of this article: You should stop drinking the koolaid. A 6-week rally does not make everything all better, nor do all the clever accounting tricks used to, well, "trick" the average Joe.

At least you're honest in that your moniker belies your blatent tendecies toward cheerleading.

Apr 19 04:14 PM

[WayneinOregon:]

When somebody speaks with a great deal of certainty about the state of the banking system, they lose credibility. Any pro or con argument can be easily countered. A lot of shoes could still fall, and if market sentiment begins to believe this, financials could easily collapse again.

Apr 19 05:11 PM

[jstratt:]

I must disagree with the writer of this article. To come to my conclusion I referenced the best sources of information possible.

Bernanke - 4/17 "the collapse of US lending will probably cause long lasting damage to home prices, household wealth and borrowers credit scores."

IMF - The downturn will be prolonged and the recovery shallow

Roubini - 3.6 Trillion losses from US institutions before it is over.

Buiter - 1.5 Trillion more needed for banks

Meredith Whitney - .5 Trillion of capital removed in 4Q

Mike Mayo - huge writeoffs to follow

An initial sale of CDOs I believe brought 3 cents on the $ and banks are carrying them at 70 cents.

I would suggest the adoption of this authors logic could be disasterous.

It is my opinion that we will see at least 2 more waves much like the waves we saw in July, Oct and Jan. It takes time to deleverage.

Right now the government is offering money for 0% so banks are recovering. Wait until they writedown CDOs and Commercial RE etc.

Banking is almost certainly still in a crisis mode.

Apr 19 06:04 PM

[wholesalecd:]

To say that banking is no longer in crisis is irrational. Yes, it's showing some promise but we have a ways to go.

In saying that I am buying BAC and some Citigroup.

Jay

Apr 19 07:22 PM

[wholesalecd:]

No big crisis in the first place?????? WOW! are you ignorant or just kidding?????

I hope the latter

jay


On Apr 19 11:11 AM ron_paulite wrote:

> Yes, I knew that all along there was no big crisis in the first place.
> And Paulson, Geithner and Ben got it right, as always. And Bush and
> Obama too. Everything has always been under their control. Yes, we
> can!

Apr 19 09:28 PM

[The Good Ne...:]

@morph366,
As the opening sentence suggests, I am not implying that all is back to normal. I agree that the Fed's job is still difficult, but that doesn't mean they will not be successful.

@ paradigm1974,
Indeed almost all PR firms will concur that appropriate deliberation prior to release of good news is just as important as when then news is negative. One wrong sentence can provoke negativity even when not merited.

@Dustinian,
I too would like to see many of those top teams squirm a bit more. In fact, I'd like to see the mid tier bank execs be given the top jobs... better yet, break up the big banks and divide them up among the top banking teams that have proven the public trust.

@Gary A,
A liquid business is more likely to be solvent than a non-liquid business. However, not all businesses with liquid assets are solvent, and not all solvent businesses have strong liquidity.

@Default 1,
Even Arianna gets it right sometimes. Her quote is right on the mark whether she knows it or not. You may want to have a look at how big residential real estate market is compared to that of commercial.

@Prudent Man,
I disagree with your memory of history. Have a look at this article:
mast-economy.blogspot....
I too was around in the seventies. I really don't see this dip as any different... in fact as that article suggests there is fairly substantial evidence that our current "crisis" has much in common with other historical finance downturns in the past 800 years. (not just 30 years ago)

@mikesa69,
Thanks for reading. A closer look at my profile will reveal my name, my website and my rational for only choosing to cover the good news: the negativity is covered quite well elsewhere...

@WayneinOregon,
Thanks: one of my favorite quotes is "most economists make astrologers look respectable."

@jstratt,
I agree that bank problems still exist. IMHO, your disagreement is a matter of degree. One of the necessary outcomes of the stress tests will be some amount of objectivity in the midst of our subjective terms like "crisis"

@wholesalecd/jay,
Yes, I still "ignorantly" maintain that there really was never a "credit crisis" at *most* banks. Of the over 8000 chartered US banks the crisis was concentrated in the top 20. (A quarter of one percent)... And the total number of banks that have failed since Oct... 37 (not even one half of one percent)

Apr 19 10:51 PM

[Jim Bob Jones:]

Amazing that bloggers can write anything based on such little info and refer to Huffington as a reliable source. Just vomited on my keyboard! Banks have little or no transparency and can say anything without backing it up. Nothing has changed in all reality with the major banks since 08 except that they are allowed more secrecy than the CIA. The treatment the shareholders and customers have gotten is in my opinion much worse than waterboarding a terrorist. Creative accounting and no regulation along with TARP and other funding is the only way they've been able to stay afloat. Financials are a nightmare and will only worsen with time as residential and commercial loans fall apart. Venture capital has dropped 64% so investment in this country shall reach an all time low with government though not really wanting too, will have to take control and kill off the whole banking culture and start anew.

Apr 20 01:49 AM

[battman:]

You have got to be kidding. If you believe any of what you wrote, then you HAVE to be flat broke, because there is no way you could be making money with such an irrational view.
Good luck to you, but I think you're way off base from what is the reality.

Apr 20 09:23 AM

[battman:]

And you're flat out wrong.

AN excerpt I read earlier;
Further, todays Wall Street Journal (April 20, 2009) is confirming at this link that lending by the largest banks has DECREASED 23% since the government began the T.A.R.P. program, causing many in Congress to ask where the money has actually been going. Apparently, it has been going into propping-up the failing banks instead of out in loans to the public.

Apr 20 09:55 AM

[The Good Ne...:]

@battman,

I don't disagree that the top banks decreased lending. (I have consistently not been an elite(top) bank fan and believe they should be split up and parceled out to the more responsible second tier solid conservative banks)

What I continue to maintain is this...
"overall business lending by *all US banks* was up 12 percent in 2008." The data is very clear on this.

GNE

Apr 20 11:55 AM

[auto44:]

With all the good businesses in this world why would anyone consider investing in a large bank at this point in time or the near future. It is obvious that the Gov't caused most of this problem and that with all the opaqe qualities of this whole scheme it would seem that wise folks would keep away. I unfortunately am an owner of (BAC) who wishes he could go back in time and correct my stupidity.

Apr 20 01:16 PM

[battman:]

We are dealing with one of the smaller local banks in Florida, and what I see is a bank that is in dire straits hoping to have enough money to pay themselves their weekly salary. I don't mean that as a generality because that does not apply to every bank, but I have yet to see a bank that has in anyway felt optomistic about lending money.
I have yet to hear people or companies talking about how it's been able to get more funding from the banks. I believe someone is playing with the stats again and twisting it to make it look better.
Can you honestly tell me you know of someone, ANYONE who has been able to borrow more money for their business? For that matter, even their home?


On Apr 20 11:55 AM The Good News Economist wrote:

> @battman,
>
> I don't disagree that the top banks decreased lending. (I have consistently
> not been an elite(top) bank fan and believe they should be split
> up and parceled out to the more responsible second tier solid conservative
> banks)
>
> What I continue to maintain is this...
> "overall business lending by *all US banks* was up 12 percent in
> 2008." The data is very clear on this.
>
> GNE
>

Apr 20 01:20 PM

[goose:]

A few years ago when the S&L crisis was wild, the fed took over the largest S&L in Portland Oregon (Ben Franklin S&L) After a long law suit the Fed court found ;that the Fed was in error and had to return ;money lost to the stock holdrs. With the stress test being ;given, maybe the test GIVERS will fail rather than the students.

Apr 20 02:07 PM

[goose:]

Many years ago when the savings and loan went ;bad, the largest S&L in Portland Oregon ( Ben Franklin) was taken over by the Feds. After sosme 3 years of litigation the courts ruled that the Fed moves were wrong and had to return money to the stockholders. I think that the Fed should be carefull and move a little slower on the Stress test, or the test givers will fail , rather tthan the ;students.

Apr 20 03:51 PM

[turen:]

good, thanks for your great post!

May 01 05:42 AM

[hankjmatt:]

It is obvious that the Gov't caused most of this problem and that with all the opaqe qualities of this whole scheme it would seem that wise folks would keep away. I unfortunately am an owner of (BAC) who wishes he could go back in time and correct my stupidity.

Jun 09 09:27 AM

[hookey4:]

Amazing that bloggers can write anything based on such little info and refer to Huffington as a reliable source. Just vomited on my keyboard! Banks have little or no transparency and can say anything without backing it up. Nothing has changed in all reality with the major banks since 08 except that they are allowed more secrecy than the CIA. The treatment the shareholders and customers have gotten is in my opinion much worse than waterboarding a terrorist. Creative accounting and no regulation along with TARP and other funding is the only way they

Oct 29 10:43 AM

[4insure:]

When somebody speaks with a great deal of certainty about the state of the banking system, they lose credibility. Any pro or con argument can be easily countered. A lot of shoes could still fall, and if market sentiment begins to believe this, financials could easily collapse again.
Apr 19 05:11 PM | Link | Reply
+5 -1

Nov 05 02:26 PM