When all you read is gloom, turn here for a much different perspective.

Monday, January 12, 2009

Banks are No Longer Failing

It has been over a month since Cerent released their contrarian report on the "credit crisis." You had a preliminary look at that report when reading, "No Credit Crunch (For Most Banks.)"

According to the FDIC, no additional banks have failed since that report. Zilch, Nada, None.
[Editor's note: Since this original posting two more banks failed in January. Although the data in this report is still salient, it appears as if there were several more shakeouts from the October distress]

Why have failures slowed? Because only a few big banks placed irresponsible banking bets based on complex "paper instruments." Those convoluted contracts and certificates are still not completely understood by those who created them or those who bought them. (Don't even try to read or understand them. They are what most conservative bank leaders call "junk.")

More importantly though, several of those large banks that were about to fail, got bailed out by the government. Those that were unable to get rid of the their "junk" in exchange for federal assistance, failed.

Source: Cerent

Source: USA Today

Most of the drama charted above took place in October, November, and the first week in December 2008. But thanks to the swift policy action on behalf of the Federal Reserve, the US Treasury, and other governments and world banks, the US bank failures have slowed significantly. (See the total list of FDIC failed banks.)

The even better news continues to be backed up by the Fed's own current data:

- Overall lending by US banks is at a record high and has increased...

- Consumer credit is at record highs and also has increased during the "crisis..."

- Deposits at all banks continues to increase....

- Loans by banks to businesses continues to grow rapidly.

And a quick glance at any daily trade publication shows that commercial paper markets are now back to operating within their normal ranges as are the municipal bond markets.

Let's call this debacle what it was: A crisis of the elite banks and their failed leadership. Most governments have now bailed them out.

The rest of the banks and their fine leadership are doing well. I for one will continue to trust such leadership with my personal bank deposits.

(Tomorrow I'll have a look at how the FDIC conducts its on-going evaluations of bank lending and why those current evaluations show on-going lending health. Do you have a good news story to report? Please send them to Editor at good.news.econ@gmail.com)

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