They Haven't Gone Away Yet…
And there’s a commercial lending bust just round the corner that might deplete the capital the banks have raised despite them (and despite the fact that certain of the stress test criteria have already been broached). I’m talking about banks’ toxic assets, of course. From today’s New York Times:
Troubled Assets May Still Pose Risk
New York Times
By EDMUND L. ANDREWS
Published: August 11, 2009
WASHINGTON The Treasury Department’s $700 billion bailout program has stabilized the banking system, but it has done little to prod banks to fully deal with the troubled loans on their books, a Congressional oversight panel said in a report to be released Tuesday.
The Troubled Asset Relief Program was originally conceived as a program for the government to buy troubled and unsalable mortgages and mortgage-backed securities.
But the Treasury has never actually used the program to buy assets, in part because it was faster to invest money directly into the nation’s banks and in part because banks have not wanted to sell their problem loans and book the loss in their value.
“The nation’s banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell,” the panel said in its latest monthly report.
As a result, it warned, many banks could find themselves short of capital if the economy suffered another downturn and their losses on troubled loans soared.
In an encouraging note, the panel said 18 of the 19 biggest bank holding companies would probably have enough capital even if economic and financial conditions deteriorated more than they have already. That conclusion essentially backed up the results of the Federal Reserve’s stress tests in April.
But it warned that thousands of small and medium-size banks, which it defined as those with assets of $600 million to $100 billion, might find themselves short a total of $21 billion if the conditions matched its worst-case assumptions.
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