ABC News: Who's Next? List of Troubled Banks Worries Wall Street, DC

[marmar]

Who's Next? List of Troubled Banks Worries Wall Street, DC
ABC News Has Obtained Privately-Prepared Lists of Most Troubled Banks

By BRIAN ROSS, RHONDA SCHWARTZ, and JUSTIN ROOD
July 15, 2008



Banks in Colorado, Maryland, Georgia and California top privately-prepared lists of troubled banks being circulated on Wall Street and in Washington.

While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts.

The lists use versions of the so-called "Texas ratio" which compare a bank's assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March.

Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980's.

"That a fair measure," said Hal Scott, a Harvard law school professor specializing in banking law.

"It doesn't mean every one of those banks is going to become insolvent, but if you have more bad loans than assets, it's not a bad way to judge what could happen," Scott told ABC News.

One list prepared by Research Associates of America, a non-profit group in Washington, D.C. funded by labor unions, reported 10 banks with a ratio over 100. (click here to see the list)

"This is information that the FDIC essentially hides in plain sight," said Jeff Fiedler, president of Research Associates of America.

At the top of the list was ANB Financial National Association of Bentonville, AR, with a 344 ratio. The bank failed earlier this year and was later taken over by a Louisiana bank.

The Colorado Federal Savings Bank of Greenwood Village, CO, was listed as having a bad loan to asset ratio of 244.82. ......(more)

The complete piece is at: http://abcnews.go.com/Blotter/story?id=5374205&page=1

[dipsydoodle]

1. The ratio you mentioned

I have alluded <fuck me that's a posh word> to the ratio in other posts.

An increasing bad debt ratio is usually masked by writing more and more new business. The reason for that is that new business is unlikely to go into default until a later date. Under current circumstances the level of new business has obviously reduced so the mask has slipped - somewhat. All banks etc must be in similar circumstances.

Use the analogy of running along with a brick tied to your neck on a long piece of elastic. It's fine umtil you stop running.

Gonna get far worse if your SEC blocks some of the stuff the've all been keeping off balance sheet. In aggregate this will be Enron with a vengence.

[TexasObserver]

2. ah, yes, the Texas Ratio

Banks can loan about 10-11 times their capital.

Capital is reduced by bad loans that must be written off per the bank examiners of the Office of the Comptroller of the Currency.

If a bank loses ten percent of their loans as write offs, the bank capital is dissipated, and there is no capital basis for the bank being in business.

In Texas, the S&Ls got in trouble by joint venturing - taking ownership interests in - real estate deals. They simply loaned way too much money, much like lenders have done now.

As in those times, the big corporations get SOCIALISM, while the smaller banks and lenders get FREE MARKET. The big ones get saved, the little ones get swallowed up by the big ones, with the government's help.