We're Still a Long Way from a Real Banking Crisis 19 comments
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So far this year, 11 U.S. banks have failed (FDIC data here), out of 8,451 FDIC-insured banks, matching the 11 bank failures in 2002. The last time more than 11 banks failed was 1994, when 15 banks failed on the tail end of the S&L crisis (see chart above). In total, almost 3,000 banks failed during the 15-year S&L crisis between 1980 and 1994.
The FDIC has currently identified 117 "problem banks" (through June 2008) with assets of $78 billion (data here), the highest level since 2002 when there were 136 "problem banks" following the 2001 recession (see chart below). This compares to the 1990-1992 period when there were more than 1,000 problem banks in each of those three years at the end of the S&L crisis, along with a recession in 1990-1991.
As a percent of total commercial bank assets (data here), the assets of troubled banks are currently at 0.71% (through second quarter), the highest level since 1995, but far below the 20-25 % levels in the early 1990s (see chart below).
We still have more than three months to go in the year, and there will certainly be more bank failures to come in 2008. There are also two more quarters of banking data to be reported, and there will probably be more banks added to the problem bank list. But at least back to the 1930s, there has never been a 5-year period of banking stability like 2003-2007 when only 10 banks failed, and the banking industry has probably never been in a better position to absorb a shock like the current subprime problems.
Problem banks are still a relatively small share (1.38%) of the 8,451 commercial banks, 98.62% of banks are not "problem banks," the assets of the problem banks represent less than 3/4 of 1% of total commercial bank assets, and therefore 99.29% of commercial bank assets are not in "problem banks."
Bottom Line: Despite the troubles in the banking industry, we're still a long way from anything close to a real banking crisis like the S&L crisis.
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For the life of me, I don't see how any bank can make money currently, when less people are making deposits and less people able to borrow money, and most banks are undercapitalized and can't acquire it at lower rates than they can lend it at.
ml-implode.com/
I doubt that this guy has even a basic working knowledge of capital markets. Your tax dollars at work, folks!
Buy buy buy, is what he is really saying.
Guess what, this is a leveraged credit crisis brought on by absurd lending and complex instruments that dwarf the S & L crisis.
Banks that are really in trouble are the ones that are highly levered and are carrying mortgages, and other related instruments on their books. Don't assume that because the number of banks failing as of today does not match the S & L crisis (yet) that everything is OK. There is so much counterparty risk out there.
Of course you don't write about that, because you are to busy being a bull 24/7.
Their are many solid, oversold banks in this sector if you take time to look. Accurate article.
Oh wait a minute, interbank lending rates are sky-high...
They aren't lending to each other because they know they have hidden bombs on their balance sheets...
And nobody external is capitalizing them...
And it's only 2008...
Maybe wait 12 months if you want to see oversold...
Why in the world would Mark Perry do this in every single article? He put on his blinders, takes his absolutely singular point of view and puts it it out here so that he can get the crap kicked out of him. He is either hell-bent to make his point, or he's into some wierd mental self-flagellation. The ten-thousand dollar question on Seeking Alpha is "What is this guy's agenda?".
Having said that Dr. Perry is correct so far about bank failures. I keep my eyes glued to this number as this is the indicator that the next shoe is falling. there are independent sources on the internet to check out banks and there are no alarm bells yet.
Where are the disclosures? Where is the media? Where is the truth about the historic scope of this crisis? Nowhere to be seen in the MSM. It's as if talk alone will produce the $2 Trillion in new capital that the US needs to recover from the burgeoning disappearance of what will ultimately be $2Trillion in capital.
Banks haven't failed en masse yet. So what?
We no longer live in such a simple world!!!!! (But I bet a lot of people wish we did).
Just because we haven't seen hundreds of bank failures to date doesn't mean it isn't coming to a 'financial institution' near you soon.
Tip of the iceberg so far.
Expect rough sailing ahead for some time to come. The Depression started in the late 20s and didn't really end until WWII started in the early '40s. The general population in those times actually had a positive net savings rate too, unlike the current American "keep up with the Jonses by spending more than I make" population.