Big Al45

Banks' Problem Loans Keep Growing

The ratio of non performing loans is important, but you also have to consider the % of bank assets that tied up in loans, the reserve for loan losses, and the ratio of shareholder equity to total liabilities.

A Texas ratio (non accruing loans + loans 90 days late and still accruing + restructured loans divided by shareholder equity plus loan loss reserve) under 30% is a better indicator of bank health than a NPL ratio under 5%.

However, regardless of whatever metric one uses, the banking system is big trouble - much bigger trouble than the FED and FDIC will acknowledge.

At least a thousand chartered banks will fail by the end of 2011 - although that number doesn't translate directly into the same number of publically traded stocks. The majority of the 1,000 failures will be privately held banks.

In addition, most publically traded "bank stocks" are bank holding companies that own multiple banks. For example, Synovus owns over 30 individual banks - most of which have NPL ratios over 3%.

Banks No Longer in Crisis Mode

The only thing Paulsen, et al , "got right" was enriching and greatly expanding the power of Goldman Sachs. And that was probably their primary goal all along for the "rescue" plan.

Will Obama's Solution Finally Save the Banking Sector?

JD Your comment that

"The fact of the matter is that the ultimate magnitude of bank losses is unknowable because it is dependent on the course of the economy, the liquidity of markets, and the risk appetite of investors"

is all that anyone needs to know. In this environment, the banks are either:
1) barely solvent using their own optimimistic assumptions regarding these factors; or

2) insolvent using the street"s assumptions regarding these factors

3) totally worthless if the 2nd great depression occurs, employment reaches 20%, and people have to liquidate their "investments" just to eat.

Given uncertainty over which set of assumptions is correct, it shouldn't be a surprise that no one wants to "own" a bank stock for more than 24 hours.

Commercial Banking and Bank Failures

I guess anyone can get a bank charter from the state, particulary when the state is Florida, Nevada, or Georgia. Many of these banks were started by local developers to fund their development schemes.

The states should not be allowed to charter new banks. Start ups should be required to get a national charter,