WSJ: Almost 100 bailed-out banks on verge of collapse

posted at 2:00 pm on December 28, 2010 by Ed Morrissey

The Wall Street Journal’s analysis of third-quarter data, reported on Sunday, shows an increase in the number of TARP recipients on the edge of failure.  The number of banks in serious trouble has increased to 98, mainly smaller banks that got rescued two years ago through TARP relief.  Treasury insists that TARP continues to perform well, even with the eroding financial position of its recipients:

Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.

The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program. …

The troubled banks identified by the Journal all have either a Tier 1 capital ratio under the “well-capitalized” 6% level; both a total risk-based capital ratio of under the “well-capitalized” 10% threshold and nonperforming loans of over 10% of their portfolio; or a regulatory order requiring the bank to monitor or boost its capital.

A Federal Deposit Insurance Corp. spokesman declined to comment on the Journal’s analysis, which also calculated that 814 of the nation’s 7,760 banks and savings institutions are troubled according to these standards, up from 729 at the end of the second quarter. The FDIC’s official list of problem banks, which uses different criteria from the Journal’s analysis, includes 860 financial institutions. The banks aren’t publicly identified.

A failure of these banks would cost more than the $4.2 billion that stands to be lost if they close their doors.  However, to put the stakes in perspective, the top eight banks got $125 billion in TARP funds, as well as other emergency funds through the Federal Reserve during the crisis.  The failures would weaken the overall system and cost taxpayers, but wouldn’t threaten a collapse.

The big problem facing these banks now is the lack of stable valuation in commercial property.  These banks did a lot of lending for smaller retail markets like strip malls, many of which face serious trouble in filling space with the economy in the doldrums.  Until the valuation of that property stabilizes (and today’s report from S7P/Case-Schiller won’t help) and leasing space begins a comeback, many of these banks will have difficulty raising more capital to offset the potential losses. Economists have warned of a potential banking crisis based on commercial property loans and securities for some time, and we may slowly find ourselves submerging into one at the moment.

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ya but this was the best Christmas retail season ever!!!

Skandia Recluse on December 28, 2010 at 2:01 PM

Gird your Loins and watch where your money is going!

Looks like slum lords will be back in fashion.

upinak on December 28, 2010 at 2:02 PM

This is why you don’t bailed out companies. Bad companies will fail no matter how much money you throw at them. It’s bad for a reason.

jdun on December 28, 2010 at 2:03 PM

This is because TARP detoxified virtually no “toxic assets”

J_Crater on December 28, 2010 at 2:05 PM

you think it’s over? it’s not over

DrW on December 28, 2010 at 2:05 PM

But all spending is stimulus.

SlaveDog on December 28, 2010 at 2:08 PM

you think it’s over? it’s not over

DrW on December 28, 2010 at 2:05 PM

Everyone I know thinks it’s over.

I keep telling them it’s way, way far from over, but no one listens. ._.

KinleyArdal on December 28, 2010 at 2:14 PM

But all spending is stimulus.

SlaveDog on December 28, 2010 at 2:08 PM

I thought unemployment checks was stimulus.
Well, if these banks go out-of-business, there will be more stimulus standing in line at the funemployment office.

Electrongod on December 28, 2010 at 2:14 PM

The question is, “Can the FDIC fund handle it?”. When a small bank fails it’s not like the depositors lose money, unless they’ve got way more money in one place than they should have.
The FDIC comes in the door and takes the place over, spins off the assets and liabilities to stronger banks and then reopens the place the next business day with a new name on the front door – crisis over! Any loses are covered by the FDIC insurance fund that’s financed with assessments on the rest of the banking system.
So it’s the size of the fund that measures the size of the crisis!

Lew on December 28, 2010 at 2:14 PM

“Banking Justice!”…

… or something.

Seven Percent Solution on December 28, 2010 at 2:15 PM

well then we’ll just have to bail them out. again. i feel the shit’s really gonna hit the fan in 2011. munis collapse. states collapsing. stock market. it ain’t gonna be pretty folks. i’m stocking up on gummy bears and cheerios myself.

sbvft contributor on December 28, 2010 at 2:15 PM

I keep telling them it’s way, way far from over, but no one listens. ._.

KinleyArdal on December 28, 2010 at 2:14 PM

Let them stare blankley at you. At least you aren’t the one drowning.

upinak on December 28, 2010 at 2:17 PM

The answer is obviously TARP II. Then TARP III. Then TARP IV. Then TARP V. But that’s it. Seriously!

Aquateen Hungerforce on December 28, 2010 at 2:22 PM

The answer is obviously TARP II. Then TARP III. Then TARP IV. Then TARP V. But that’s it. Seriously!

Aquateen Hungerforce on December 28, 2010 at 2:22 PM

Don’t be sarcastic. These banks are too small to fail!

Spectreman on December 28, 2010 at 2:25 PM

WSJ: Almost 100 bailed-out banks on verge of collapse

…and 100 cities are going to join them in Chapter 9 Bankruptcy…

PatriotRider on December 28, 2010 at 2:29 PM

no worries…Ben will print us into prosperity…

PatriotRider on December 28, 2010 at 2:30 PM

The FDIC comes in the door and takes the place over, spins off the assets and liabilities to stronger banks… Lew on December 28, 2010 at 2:14 PM

That should be: spins of the assets to their connected pals and picks up the lion’s share of the losses.

No one bothers to explain how certain banks are first in line to immediately take over the banks that fail. Just another example of the Mafia-style organization our government has become, IMO.

But we are still on the hook.

MrScribbler on December 28, 2010 at 2:45 PM

And yet, we just had to bail out these institutions.

Plus, weren’t we just told yesterday that this recovery is piling on the jobs at an unprecedented rate?

Esthier on December 28, 2010 at 2:47 PM

And we have so much money we’re lending to foreign banks too!

Non-US banks gain from Fed crisis fund

This must end or we will implode.

chimney sweep on December 28, 2010 at 2:51 PM

“The double dip is almost here,” said David Blitzer, chairman of S&P’s index committee.“There is no good news in October’s report.” Explaining that “the trends we have seen over the past few months have not changed,” Blitzer cited expired tax incentives and a “lackluster” national economy as some of the causes.

J_Crater on December 28, 2010 at 2:54 PM

…and 100 cities are going to join them in Chapter 9 Bankruptcy…

I think there going be more than 100 banks and city going bankrupt in the coming years.

jdun on December 28, 2010 at 3:04 PM

They should have let these banks crash when they had the chance.

What I don’t get is libtards believe in evolution, survival of the fittest. Under that scenario, when things die off, stronger things take their place.

This is why I will never understand libtards. They can’t even stick to the crap they DO believe in.

gary4205 on December 28, 2010 at 3:06 PM

TARP: Postponing the inevitable.

And all of this, is being done with intent. Obama reeeeeeeally wants his image on the money!

capejasmine on December 28, 2010 at 3:11 PM

Note that these are not the same kind of loans that went toxic earlier, that was home mortgages, these are commercial mortgages.

Lenders get into trouble when too many of the loans they have outstanding go bad.

LarryD on December 28, 2010 at 3:18 PM

The commercial real estate market is the next to go, and no amount of stimulus or TARPs can keep it going. A real recovery might save the businesses that would be occupying the commercial property sector, but small business creation is down due to the financial and fiscal problems of the Nation. There are no upsides in all the legislation that has been passed for small businesses to start up, and all the regulations in health care and finances are disincentives to those who have capital waiting it out on the sidelines.

The next Congress must get rid of the uncertainty by getting rid of the regulations… and the agencies that are now promulgating ever more regulations should be the target. There is no upside to starting a small business in this atmosphere due the cost of the barrier to entry rising. Established and big firms can absorb regulatory costs far better than small and start-up ones. There will be no ‘recovery’ until the regulatory regime is rolled back. Until that happens there will be nothing good happening in the commercial real estate market, and no expansion of hiring, either.

Stop the insanity of regulators gone wild.

Stop the spending.

ajacksonian on December 28, 2010 at 3:20 PM

It’s just the way the cartel works. It’s how they swallow all the small independent banks. They did it alot during the depression.

True_King on December 28, 2010 at 3:53 PM

Is Congresswoman Maxine Watters’ bank OK?

/s

Khun Joe on December 28, 2010 at 4:03 PM

ya but this was the best Christmas retail season ever!!!

Skandia Recluse on December 28, 2010 at 2:01 PM

Last meal for the convicted American consumer.

hawksruleva on December 28, 2010 at 4:07 PM

Funny thing about that bailing thing. As long as you’re still in water over your head if you don’t actually fix the boat you just have to keep on bailing.

Oldnuke on December 28, 2010 at 5:24 PM

Any company forced out of business is bad, and a bank has particular repercussions throughout the economy.

“The big problem facing these banks now is the lack of stable valuation in commercial property.”

This is in addition to the continuing plummet of the housing market. Some say it’s all by design.

Mark Steyn explained that any free society is based upon private property as a foundation for wealth and stability. This is antithetical to the progressive design for loathsome ‘social justice’ of equality of outcome.

Once the foundation for private wealth & stability is in jeopardy, a govt. bent on tearing down the strong to build up the weak will use the instability as ‘crisis which shouldn’t go to waste’ – a crisis, which by fiat, only the govt. can solve for those things ‘too big to fail’ – in exchange for more and more control over all things financial, of course.

Like I said, some say it’s all by design.

locomotivebreath1901 on December 28, 2010 at 5:34 PM

The unstated (but essential) purpose of the Obamacrat financial reforms wasn’t so much to end the bank bailouts as it was to get big (blue city and state) banks to take over smaller local (red) banks — effectively consolidate more money and power into increasingly blue localities.

drfredc on December 28, 2010 at 6:19 PM