Where Are the Bank Failures in This Financial Crisis? 45 comments
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If you read the common Internet buzz concerning the current financial crisis you would get the impression that this is the worst crisis ever to hit the economy. Yet, on Friday the FDIC announced only the 10th bank failure for 2008. With over 8,000 banking institutions in the U.S., 10 failures seem a long ways away from a crisis. I decided to take a closer look at some of the data to see how “big” the banking crisis has become. Here are a few points I find of interest:
- The 10 banks taken over by the FDIC had just under $40 billion of assets in total.
- The total assets of the 10 largest banks in the U.S. is a combined $6 trillion.
- Total assets of all 8,451 FDIC insured institutions is $13.3 trillion.
- Percentage of failed assets, year to date, of total: 0.3%. Or written as a decimal: 0.003 of all banking assets were in failed banks so far this year.
In comparison, during the Savings and Loan debacle of the 1980s and early 1990s there were over 1,000 federally insured S&L’s dissolved. The Resolution Trust Corp. took down 747 institutions over 6 years, or a rate of 125 per year. The current situation is showing no signs of getting anywhere near those levels.
The current situation has most banks taking severe write downs on any asset that has any chance of being impaired. If these assets under-perform less than anticipated, many banks could be recouping the write downs as outsized profits in the next few years.
I know many believe we are just at the beginning of a major financial crisis in the U.S. I see a financial system where home prices peaked almost 3 years ago and the mortgage meltdown started in earnest over a year ago and we still have only 10 bank failures and less than 1/3 of 1% of banking assets taken over by the feds. I do not see failures accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom.
Disclosure: None
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This article has 45 comments:
So *on any asset*? Please if banks are that strong why don't they price to market instead of moving stuff to level 3?. The reason more banks haven't failed is because on your face tax payer support. Housing bottoming? Are you this naive?
In the S&L days, failures were regionalized due to the localized nature of S&L (indeed, even commercial) lending. There was little or no repackaging or tranching of loans. When a region saw a disproportionate number of loan defaults, may of the regional banks were in trouble.
Consequently, the losses incurred by those institutions that failed were simply too big for them to swallow, given their relatively small size.
Today, the same magnitude (more or less?) of losses is being absorbed by much larger firms, who are more well equipped to handle the write-downs and/or are deemed "too big to fail", either one of which keeps them in business.
It's not to say that the losses, and consequent shaking of faith in the stability of the system, aren't still very serious.
...my two cents.
Where are the bank failures? They are coming as soon as we run out of money to prop thme up.
We are keeping interest rates below inflation to prop up the banks at the expense of the consumer. Enough already.
FSLIC was replaced by the Resolution Trust Corporation in 1989 and from that point through 1995 and there were an additional 747 failures with assets of $393 B.
I think there is merit in the comment above suggesting that FNM and FRE along with BSC should be factored into the equation. Here is a link to a recent article:
www.reportonbusiness.c...=
Source: www.fdic.gov/bank/anal...
www.fdic.gov/bank/anal...
You can view the lists at my blog.
bankruptbanks.blogspot.../
Arctec, you better have some analysis backing up that list of yours because it looks like you just pulled some names out of a FDIC phonebook. Your blog doesn't give much analysis either. Big Brother is watching.
It’s getting much harder for banks to raise capital, which forced banks to liquidate more assets and so forces them to raise even more capital, and so on. Worse, as this crisis deepens, the need for banks to raise capital has actually increased.
During this past year banks have actually increased their lending by 20% because of contractual obligations, but this won’t last because they have no choice but to reduce their balance sheets. So in reality the credit crunch is only beginning.
Next, sector after sector is getting dragged into this massive deleveraging, not just banks. Housing is deleveraging and so is the consumer.
This dance still has yet to play itself out.
Fannie and Freddie are an interesting case. Any bailout of Fannie and Freddie must be structured so as to NOT be categorized as a default which would trigger CDS payouts. Anything likely to trigger a widespread CDS claims event could possibly bring down the house, witness the "I just crapped my pants" reaction to Bear Stearns. But any bailout of Fannie and Freddie that does NOT wipe out shareholders will be hugely burdensome on the US taxpayer and carry a heavy burden of obvious and oh-so public "moral hazard".
It's my understanding that the regionals et al were heartily encouraged to stuff their balance sheets with Fannie and Freddie debt, since after all they were "agencies" of the dot gov. So wiping out shareholders and giving a haircut to preferreds and senior debt could kill off the regionals, who are already on life support. So Paulson's challenge is to stuff a whole lotta dough into Fannie and Freddie without triggering defaults. Remember when the bailout seemed certain, and then all of a sudden: "Hey, maybe we won't need to bail them out, they might be OK after all!!" Someone realized the quandary.
"Is that a bazooka in your pocket, or are you just glad to see me?"
FNM and FRE are a bit different, but at this point we know the common is probably wiped out (again, these holders knew the risks) and the debt is supported (as it should be, given that it's fairly low interest debt that has supported the common good of cheap mortgages). Remember that FNM and FRE hold pretty well-collateralized portfolios - even in a worst-case scenario the government just winds up holding a bunch of houses that it has to put on the market when the economy rebounds. Also remember that the seemingly huge asset price declines in housing and the stock market are just rolling us back to 2003-2005 levels, and there was no real fundamental reason for the run-up in asset prices during 2006-2007, so really the money everyone is losing is money that they didn't exactly have in the first place.
Or the sky is falling! If that's more fun for you all....
Don't confuse what I WANT to happen with what I think MIGHT happen. Still trying to figure it out, just like the rest of us. One thing we can say for Bernanke, he has done a fine job of obfuscating the truth. If too many figured it out too soon, his ability to jawbone would disappear and he would become irrelevant.
That money does not find it's way to the home buyer, and those profits go straight to the banks, giving them no reason to try to re-negotiate loans that are ready to default. If they were still making the 1%, it would be best for them to renegotiate loans to avoid mass foreclosures. Sure they might make 0.5% as opposed to 1%, but that is better than losing 1/4 of a million dollars/foreclosure (Chicago suburban market values as a point of reference)
Also, I don't see home values dropping that much. Every so often I check to see what homes are priced at, and a home that 2 years ago that would be priced at $250,000 is now priced at $240,000. Maybe it is the current owners, maybe it is the real estate agents, but for the interest rates rising, it can actually cost more to buy a home (given a 30 yr fixed interest rate) at today's market value, than it would have if you were to buy the same house 3 years ago at then market value.
One or two large failures is to be expected from this credit bubble bursting and a greater number of smaller regional institutions who got away from conservative operations will bite the bullet also. The risks are real, but the systemic risks to the system have been handled well enough to ensure viability of the sector and continue operations.
yes, all clear, captain! full rudder toward the massive icy land mass!
The Central Banks can't continue to pump money in forever, and the first one to crack is likely to be the ECB, as it is more difficult to pass losses on to the taxpayer when most of the cost will hit only some of the countries.
Once one Central Bank stops the financing, the rest have to or their exchange rates would totally collapse.
This will trigger the inevitable de-leveraging, as the banks will have to virtually cease lending to try to re-build their capital ratios, and house buyers will at best be able to get the traditional 2.5 times the main earners income instead of the up to 6 times both incomes at present.
All this is going to throw vast numbers of people out of work, creating more legs down in prices and credit availability.
Those who are calling a bottom seem to think that leveraging can increase forever.
It is now pay-back time.
I think the reason banks aren't failing is become people are focused on ONE product banks offer (Mortgages). In recent years they've been able to get a strong on other revenue streams... Like debit cards, ATM fees, and other bank fees.
So the bank takes your house...which you were paying under 10%... Now your credit is shot.... so now the bank is getting over 22% on everything else you own, car, credit cards,appliances.. and now the bank owns your house. Sounds like bank is making out. Granted a house would yield more profit for the bank after 10 years... but in the short term.... I m thinking the banks would be OK...as they make more off interest and then sell your house in 2 years.... maybe even back to you...LOL
People say "The bank is not in the real estate game...they don't want to own houses".... How could they ignore the potential gain from holding onto these properties until the market goes up?
The problem is the wonders of fractional banking reserves, where reserves have declined from 1:10 after the war to 1:60
What that means is that if the Bank had $1 in deposits, it could lend out $10 after the war, or $60 now.
Now if house prices drop 20%, and the borrower is in trouble, the bank might sell it for 40% less than they have out on loan to move it fast.
If the bank had financed 24 houses, then to make up for it's loss if it was geared 10:1 it would have wiped out the capital to finance 4 houses.
At 60:1 all your capital is gone.
The same thing applies to bankrupt businesses.
This is just to give you the rough idea, but the basics apply.
Every bank in the country if losses were properly accounted for and the Fed was not supporting them is probably insolvent.
The real question is whether you really can fool all the people all the time. I don't think so.
Soon fannie and freddie will be nationalized as they are currently insolvent. The taxpayer will demand that the cheap and easy money spigot be cut off because nobody really wants to subsidize a purchase of homes for rich people. That means real interest rates will go up in the market place for this jumbos. At the same time, fannie and freddie have a huge debt refi coming up in Q4 to the tune of 230 billion. Nobody is going to loan them money at 3% anymore. They will have to pay 7-8% at least IMO. That means fnm and fre can not lend that money out at 6% anymore. The debt refi will send fnm and fre over the edge and will be declared insolvent. Real interest rates have no choice but to go up. That hold true for money borrowed by consumers as well as that borrowed by banks.
The explosion has gone off in the dam. The cracks have formed and the water is trickling through right now. Just give a little time for nature to take its course. The dam will burst, it just takes patience to watch for it.
The longer it goes on the better - the losses are being borne by the taxpayer anyway.
Did you miss one?
BSC survived the GD...IMB largest implosion ever...we are at 11 and averaging one a week...FDIC is hiring and expanding...head of FDIC is asking to borrow money from treasury
get ready buddy youll see them...in the meantime perhaps Kudlow will invite you in his show and you and dennis kneale can have a boooolish party celebrating your limited forsight
but hey timmy grab your socks a credit union went kaboom today
hedge fund went kaboom today
but yeah i bet in 1986-87 they had similiar doubters such as yourself
PS has Larry Kudlow called yet????
The consequence is inflation and the devaluation of the dollar. So, if you view inflation as a tax on your income and assets, then yes, you are paying the price to bail out these private companies (As an aside, I'm always amazed by people who are staunchly anti-tax, but support inflationary policies).
I'm predicting interest rates in the 2% range for at least the next year, with inflation around 4-6%.
I'm not saying there's anything wrong with chickens running around... I'm just saying that Americans are going to lose all their public and private wealth. In the name of fighting Al Qaeda and promoting democracy and all that crap.
It is just a huge mass looting. But if people choose to be so dumbed down as to accept this then so be it. I just wish people would realize what this country is going to be like once ALL the public assets are sold off to pay for this orwellian state. All our roads, bridges, parks, all public land, all infrastructure, it is ALL going bye bye. You will not be able to access it unless you have $$money. And you will never have $$money because they will charge an arm and a leg for water and tolls and a million other things that used to be free. All in the name of keeping you safe from the terrorists. Enjoy your nice tasty dish of Karma.
Thomas Jefferson: “If the American People ever allow private banks to control the issue of their currency...the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”
This is EXACTLY, what is happening today. It is no more complicated than that. The country is being systematically mass-looted. Once they are finished with their looting, that is when TSHTF.
Today, Thomas Jefferson would no doubt be called a conspiracy theorist and he would be sent recipes and have tin foil hats photoshopped onto his head. But I bet he would be recommending you watch Fabled Enemies: video.google.com/video...
IT is election time> The FED is pumping 15 billion dollars a day into the banking system. They will have pumped (LOANED)2 trillion by the end of the year.
It this keep up you can forget running out of toilet paper just open your wallet.
The Banks are insolvent, only peoples ignorance of that is keeping things afloat. When does reality intrude?
1) That accountancy rule 157 that made banks write down on their own debt obligation by the song of over 160 billion. (By the way, here in Europe that is not allowed and this explains also why European banks have reported far more down writings compared to their USA peers.)
2) Level 3 assets are still climbing.
3) When measuring bank reserves under the present Basel rules, the so called 'off balance' items are not counted. The 'off balance' items are similar in size compared to the 'on balance' items. (Guess where the biggest losses are parked...)
4) The FDIC only comes in action when bank reserves have declined to about 3%, this gives some time delay of course.
5) Banks have two kinds of books: Banking books and market books, market books are often remarked in the 'mark to market' process while on banking books there is again a large time delay.
6) The public does not understand how severe the crisis could get because every time they buy new stock to the song of countless billions.
7) The amount of outstanding TAF auction money and the other programs there to 'provide liquidity' is now four times the total combined bank reserves.
See: www.federalreserve.gov.../ (look in the third column, the 'non borrowed' reserves are the real reserves, they are negative because the US commercial banks live on borrowed reserves...)
The offered colateral undergoes only a haircut of a few percent while in practice this should be about 30% (thus wiping out all combined reserves of the US commercial banks).
The last is also a problem here in Europe; the ECB tries to get a hold on the fraud that is commited.
8) Think for yourself and find a few reasons more!
All in all: This was a lousy article with almost no homework being done.
www.fdic.gov/bank/indi...
oh and it looks like the biggest psuedo banks/hedgefunds of them all have been taken over too
oh ya move along nothing to see here
and oh ya unemp rate on 6.1% so it doesnt matter
oh well LMAO
1) raise $$$
2) no brokered deposits
3) divest REO portfolio
hummmmmmmmmmmmm
WM LEH
will you just die in your sleep now please
or go to the tankervale woodshed with bill miller, tom brown and all the other perma bull schilles
BWAAAAAAAAAAAAAAAAAAAA...