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

Saturday, April 18, 2009

The Bank Crisis is Over

Do our banks still have problems? Yes. But are the top banks still in crisis? No.

You've read here consistently that even when the big banks seemed insolvent, there was no credit crisis at most banks. In fact the data now shows that according to the Federal Reserve, overall business lending by all US banks was up 12 percent in 2008. That actually reverses a trend where lending institutions scaled back loans during the last six economic downturns. Surprisingly a new report by the National Federation of Independent Businesses reveals that only 8 percent of small businesses reported problems in obtaining the financing they needed during this current downturn.

On Saturday Arianna Huffington described the peak of the "crisis" well: "When we castigate 'bankers' for the banquet of greed and corruption, we need to keep in mind that we are really talking about the high-flying financial gluttons of Wall Street who have come to dominate the global credit market, and not the vast majority of much smaller, and much more local 'traditional' banks."

Further Edward Yingling, president and CEO of the American Bankers Association, asserts: "Wall Street and Main Street banking are very different. Of the over 8,000 banks in this country, very few ever made a single subprime loan, and they did not engage in the highly leveraged activities that brought down Wall Street firms." You'll remember all those banks that said, "TARP? No Thanks!"

But now enter data from the last three weeks. Are those top banking entities struggling any longer? No. Are they racing each other to pay back their TARP obligations? Yes. Will the majority pass stress tests. No doubt.

The stress test regulators will likely find there is no need to fix what now is not broken. Top bank liquidity has returned. Ironically what the bank giants are revealing during this earnings season is that the low cost of money from the government combined with a surging demand for new mortgages was all the medicine that was required.

And for all those who love to hate the government programs of the past 6 months: Paulson, Geithner, and Bernanke got it just right.


  1. The Fed's programs are really working and it's noticeable. Media is still focused on the local banks which are still in trouble and thus makes everyone believe the credit crisis is still a threat. The trusted and well-known banks are actually doing better and better each day. Making money out of paper profits from the Fed only leads to a nice recovery.

    Take care, Elli

  2. How does this square with reports that Citibank's credit losses are growing rapidly? Could it be that more commercial real esate loans are maturing now and they are going into default?

  3. Anonymous,

    I am not familiar with the data that shows credit losses growing rapidly. In fact, the data that I am seeing shows just the opposite. Can you site a source for me to examine?


  4. GNE,

    I saw the headline on my internet page earlier today. Don't recall which site (they change) but it was either FOX or USA Today. I thought it was strange given Citi's good earnings results.

  5. they are talking right now that the gubment will have to take common stock in banks to save them. and that the public is going to take a 300billion dollar hit.

  6. Actually, the Treasury has already taken preferred stock and special warrants via the TARP program. For those banks who have already paid the Treasury (taxpayers) back, we have made a handsome profit. I say let them keep the money for a while longer and will get a larger return. What you see now is the banks racing to pay the government back, so they don't have to pay more on what they owe.


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