Democratic Underground Latest Greatest Lobby Journals Search Options Help Login

What the Bank Stress Tests Didn't Predict

Printer-friendly format Printer-friendly format
Printer-friendly format Email this thread to a friend
Printer-friendly format Bookmark this thread
This topic is archived.
Home » Discuss » Topic Forums » Economy Donate to DU
steven johnson Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Aug-23-09 04:03 PM
Original message
What the Bank Stress Tests Didn't Predict
Edited on Sun Aug-23-09 04:38 PM by steven johnson
There was a suspicion that Gaitner's stress tests for banks weren't tough enough. The evidence at this point seens to bear this out.

The Congressional Oversight Panel released a report on the "Continued Risk of Troubled Assets" last week that concluded community banks may be on the verge of a new crisis stemming from huge quantities of whole loans on their books that could turn toxic if the economy deteriorates. It analyzed 719 community and regional banks with assets between $600 million and $80 billion and counted $81.1 billion in potential core commercial real estare and construction loan losses through 2010.
The FDIC reports, for instance, that loan quality at all U.S. banks is the worst in a quarter century - 7.75% of the $7.7 trillion on their books in March show signs of distress - and it isdeteriorating at the fastest pace ever.

...Institutional Risk Analytics...slapped a failing grade on 1,882 banks out of 7000 as of June 30, up 16.5 percent from the end of March; ...

Based on his preliminary review of individual bank reports, Mr. Whalen said the greater stress across the industry results from the large number of banks getting dinged by losses or charge-offs. The figures, Mr. Whalen said, call into question assumptions made by the government earlier this year, when it put major banks through "stress tests."

In short, the tests may not have been tough enough.

"The stress tests said that through the two-year cycle, big banks had to have enough capital plus earnings to withstand a 9 percent loss rate," Mr. Whalen said. "But what we're seeing with the levels of stress in the industry is that we are there now and we are not at peak of cycle yet."

What the Bank Stress Tests Didn't Predict
Printer Friendly | Permalink |  | Top

Home » Discuss » Topic Forums » Economy Donate to DU

Powered by DCForum+ Version 1.1 Copyright 1997-2002
Software has been extensively modified by the DU administrators

Important Notices: By participating on this discussion board, visitors agree to abide by the rules outlined on our Rules page. Messages posted on the Democratic Underground Discussion Forums are the opinions of the individuals who post them, and do not necessarily represent the opinions of Democratic Underground, LLC.

Home  |  Discussion Forums  |  Journals |  Store  |  Donate

About DU  |  Contact Us  |  Privacy Policy

Got a message for Democratic Underground? Click here to send us a message.

© 2001 - 2011 Democratic Underground, LLC