Former Bank Regulator William Black: U.S. Using “Rally Stupid Strategy” to Hide Bank Losses – Will Produce Japanese Style Lost Decade
by ilene - August 14th, 2010 1:53 pm
Former Bank Regulator William Black: U.S. Using "Rally Stupid Strategy" to Hide Bank Losses – Will Produce Japanese Style Lost Decade
Courtesy of Mish
Aaron Task has a nice interview with former bank regulator William Black on our "Really Stupid Strategy" to Hide Bank Losses"
109 U.S. banks have failed so far this year, 23 in this quarter alone. These failures may not cost depositors, but they do come at a steep cost to the FDIC. As discussed here with ValuEngine’s Richard Suttmeier, the FDIC Deposit Insurance has already spent $18.93 billion this year, “well above the $15.33 billion prepaid assessments for all of 2010.”
The situation is likely even worse than the FDIC portrays, says William Black Associate Professor of Economics and Law at the University of Missouri-Kansas City.
“The FDIC is sitting there knowing that it has both the residential disaster and the commercial real estate disaster [and] knowing it doesn’t have remotely enough funds to pay for it,” he says.
William Black with Aaron Task Video
Partial Transcript
Aaron Task: Should we be surprise there are not more bank failures?
William Black: Not Surprised,we should be upset there are not more bank failures. The industry has used its political muscle to get Congress to extort the financial accounting standards board to gimmick the accounting rules so that banks do not have to recognize their losses.
Aaron Task: In practical terms, what does the gutting of that rule mean for the banks?
William Black: Capital is defined as assets minus liabilities. If I get to keep my assets at inflated bubble values that have nothing to do with their real value, then my reported capital will be greatly inflated. When I am insolvent I still report that I have lots of capital.
Aaron Task: You are saying the FDIC is intentionally keeping foreclosures down because it knows it does not have enough money to pay off depositors who are insured by the FDIC?
William Black: That is correct and that is going to make ultimate losses grow. It also means we are following a Japanese type strategy of hiding the losses and we know what that produces – a lost decade, which is now two lost decades. Your listeners and viewers if they are stock types, look at the Nikkei. It lost 75% in nominal terms and has stayed that way for 20 years. I…
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Greater Than One in Four FDIC Insured Institutions are Unprofitable; Bank Problem List at 15 Year High
by ilene - August 29th, 2009 8:50 pm
Greater Than One in Four FDIC Insured Institutions are Unprofitable; Bank Problem List at 15 Year High
Courtesy of Mish
The second quarter 2009 Quarterly Banking Profile has some interesting charts and facts that inquiring minds will be interested in.
Insured Institution Performance
- Higher Loss Provisions Lead to a $3.7 Billion Net Loss
- More Than One in Four Institutions Are Unprofitable
- Charge-Offs and Noncurrent Loans Continue to Rise
- Net Interest Margins Show Modest Improvement
- Industry Assets Decline by $238 Billion
- The Industry Posts a Net Loss for the Quarter
The Industry Posts a Net Loss for the Quarter
Burdened by costs associated with rising levels of troubled loans and falling asset values, FDIC-insured commercial banks and savings institutions reported an aggregate net loss of $3.7 billion in the second quarter of 2009. Increased expenses for bad loans were chiefly responsible for the industry’s loss. Insured institutions added $66.9 billion in loan-loss provisions to their reserves during the quarter, an increase of $16.5 billion (32.8 percent) compared to the second quarter of 2008. Quarterly earnings were also adversely affected by writedowns of asset-backed commercial paper, and by higher assessments for deposit insurance.
Almost two out of every three institutions (64.4 percent) reported lower quarterly earnings than a year ago, and more than one in four (28.3 percent) reported a net loss for the quarter. A year ago, the industry reported a quarterly profit of $4.7 billion, and fewer than one in five institutions (18 percent) were unprofitable. The average return on assets (ROA) was -0.11 percent, compared to 0.14 percent in the second quarter of 2008.
Net Charge-Off Rate Sets a Quarterly Record
Net charge-offs continued to rise, propelling the quarterly net charge-off rate to a record high. Insured institutions charged-off $48.9 billion in the second quarter, compared to $26.4 billion a year earlier. The annualized net charge-off rate in the second quarter was 2.55 percent, eclipsing the previous quarterly record of 1.95 percent reached in the fourth quarter of 2008.
The $22.5 billion (85.3 percent) year-over-year increase in net charge-offs was led by loans to commercial and industrial (C&I) borrowers, which increased by $5.3 billion (165.0 percent). Net charge-offs of credit card loans were $4.6 billion (84.5 percent) higher than a year earlier, and the annualized net charge-off rate on credit card loans reached a record 9.95 percent in the second
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.
