bank run blog

Just as the some of the nation’s largest and most coddled banks step up to ostentatiously “repay” a tiny fraction of the money that the Treasury and Federal Reserve have funneled to them through a purposely bewildering variety of mechanisms since August 2007, the ratings agencies have discovered similar widespread insolvency at the regional and super regional level. According to Reuters :

“Standard & Poor’s on Wednesday cut its ratings on 18 banks citing expectations of more difficult operating conditions due to volatile financial markets and tighter regulation.

Among the rating changes, S&P cut the counterparty credit ratings of Wells Fargo & Co by one notch to AA-minus, U.S. Bancorp by two notches to A-plus and Fifth Third Bancorp by two notches to BBB.

S&P also downgraded the counterparty credit ratings of Huntington Bancshares and Carolina First Bank by two notches to junk-status BB-plus with a negative outlook. It also cut Citizens Republic Bancorp counterparty credit rating by three notches to BB-minus with a negative outlook.”

The Associated Press reports that S&P analysts predict “permanent repercussions” still to come from the banking crisis that so many believe is over :

“Widescale changes to the industry because of the credit crisis and ongoing recession will dramatically alter the banking landscape, S&P credit analyst Rodrigo Quintanilla said in a release.

‘We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,’ Quintanilla said. ‘Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality. Such a transition period justifies lower ratings as industry players implement changes.’”

Reuters : S&P cuts credit ratings on 18 US banks

Associated Press : Standard & Poor’s cuts ratings on 18 banks

Bloomberg : U.S. Stocks Fall, Led by Banks on Downgrade; Health Shares Gain

Speaking to members of Congress today, Federal Reserve Board Chairman Ben S. Bernanke delivered a message of cautious optimism about the US economy, saying that modest growth may be possible later this year. The Associated Press reports :

“Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy should start growing again later this year, his most optimistic assessment of the country’s financial health since the recession struck with force last year.”

Bernanke sees reasons for renewed hope that the economy may be on the rebound :

“’We continue to expect economic activity to bottom out, then to turn up later this year,’ he told lawmakers. ‘We expect that the recovery will only gradually gain momentum.’

Recent data suggest the recession may be loosening its grip on the country, Bernanke said.

‘The pace of contraction may be slowing,’ he said. It was similar to an observation the Fed made last week in deciding not to take any additional steps to shore up the economy.”

If the tenor of Bernanke’s economic prognosis sounds familiar, it’s only because you’re paying attention. Here’s what the Fed chairman told an audience of distinguished academics and policymakers at the International Monetary Conference in Barcelona in June, 2008 :

“We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus, reduced drag from residential construction, further progress in the repair of financial and credit markets, and still solid demand from abroad. This baseline forecast is consistent with our recently released projections, which also see growth picking up further in 2009.”

Today’s guardedly upbeat remarks were made in Congressional testimony before the Joint Economic Committee. Bernanke told the same committee in March, 2007 :

“Growth in consumer spending should continue to support the economic expansion in coming quarters. In addition, fiscal policy at both the federal and the state and local levels should impart a small stimulus to economic activity this year.”

Bernanke’s forecast for 2007 concluded :

“Overall, the economy appears likely to continue to expand at a moderate pace over coming quarters. As the inventory of unsold new homes is worked off, the drag from residential investment should wane. Consumer spending appears solid, and business investment seems likely to post moderate gains.”

Keenly sensing a “cooling” of the US housing market in 2006, USA Today reported that Bernanke was expecting a “soft landing” :

“The housing market, after flying high for five years, has lost altitude but appears headed for a safe landing, Federal Reserve Chairman Ben Bernanke said Thursday.

‘It seems pretty clear now that the U.S. housing market is cooling,’ Bernanke said in a question-and-answer session following a speech he delivered on banking in Chicago.

He noted that home sales and construction are slowing.

‘Our assessment at this point … is that this looks to be a very orderly and moderate kind of cooling,’ Bernanke said.”

A former professor of economics at Princeton, with degrees from Harvard and MIT, it is certain that Bernanke is one of the best and brightest of his generation. The question is, at what?

Associated Press : Bernanke: Economy should grow again later in 2009

Federal Reserve Board : Remarks by Chairman Ben S. Bernanke at the International Monetary Conference, Barcelona, Spain (via satellite), June 3, 2008

Federal Reserve Board : Prepared Testimony of Chairman Ben S. Bernanke Before the Joint Economic Committee, U.S. Congress, March 28, 2007

USA Today : Bernanke: Housing market is headed for a soft landing (May 18, 2006)

On Friday afternoon, the Treasury announced that it was pushing back publication of the bank stress test results to next Thursday, apparently because some banks are trying to appeal their grades. According to CNN :

“Regulators have delayed releasing the results of stress tests conducted on the nation’s largest banks until May 7, government officials familiar with the matter said Friday.

The government expects to release its assessment next Thursday afternoon and will provide information both on individual companies as well as the overall group, according to sources.

For weeks, Wall Street has been anxiously awaiting the results of the tests, which regulators originally indicated would be announced on May 4.

Austan Goolsbee, a top economic adviser to President Obama, indicated Friday that the delay was driven, in part, over a disagreement by banks over the results of the tests. Regulators began notifying participating institutions of the results last Friday.”

The Financial Times reports that Treasury officials are concerned about the effect of the test results on share prices in the financial sector :

“The authorities’ decision to let the original timetable slip also reflects the widespread belief that, after months of speculation since the tests were first announced in February, their outcome has the potential to disturb the markets.

Government sources said regulators were likely to release both aggregate and individual data for each of the 19 banks, detailing their losses and capital needs under adverse economic -scenarios.

Some of the banks will then supplement those data with regulatory filings and analysts’ calls. Bankers said several lenders had pleaded with regulators for more time to lay out plans to plug any capital shortfall identified by the stress tests, by raising equity from either the government or from the stock market.

People familiar with the situation said that, despite their objections, Citi and BofA – and at least four more lenders – were almost certain to need more equity capital.”

It is left to the Times of India to mention the obvious next step for the feds, in an article headlined Markets expect more bailouts after bank stress tests :

“The relief after banks’ better-than-expected results during the first quarter has been short-lived.

Standard & Poor’s warned in a report that the credit cycle is tougher than expected.

’Markets are concerned about the rapid deterioration in bank loan portfolios in the US, as not only consumer loans, but commercial and commercial real estate delinquencies are on the rise,’ S&P said.”

CNN Money : Bank stress test results delayed

Financial Times :Cautious regulators delay release of financial stress report

Economic Times : Markets expect more bailouts after bank stress tests

The FDIC has announced the failure of America West Bank, of Layton, Utah. The federal agency has arranged a sale of the failed bank’s assets to Cache Valley Bank of Logan.

America West Bank is the 32nd bank to fail in the nation this year, and the second in Utah. The FDIC closed MagnetBank, Salt Lake City, on January 30. There were a total of twenty-five bank failures in the United States in 2008. From the official press release :

“America West Bank, Layton, Utah, was closed today by the Utah Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Cache Valley Bank, Logan, Utah, to assume all of the deposits of America West.

The failed bank’s three offices will reopen on Monday as branches of Cache Valley Bank. Depositors of America West Bank will automatically become depositors of the assuming bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches.”

see resources–

FDIC Failed Bank Information Page : Cache Valley Bank, Logan, Utah, Assumes All of the Deposits of America West Bank, Layton, Utah

Salt Lake Tribune : America West Bank shuttered

The FDIC has announced the failure of Citizens Community Bank, of Ridgewood, New Jersey. The federal agency has arranged a sale of the failed bank’s assets to North Jersey Community Bank, of Englewood Cliffs.

Citizens Community Bank is the 31st bank to fail in the nation this year, and the first in New Jersey. The last FDIC-insured institution to fail in the state was Dollar Savings Bank, Newark, on February 14, 2004. There were a total of twenty-five bank failures in the United States in 2008. From the official press release :

“Citizens Community Bank, Ridgewood, New Jersey, was closed today by the New Jersey Department of Banking and Insurance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with North Jersey Community Bank, Englewood Cliffs, New Jersey, to assume all of the deposits of Citizens Community Bank.

The failed bank’s sole office will reopen on Monday as a branch of North Jersey Community Bank. Depositors of Citizens Community Bank will automatically become depositors of the assuming bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until North Jersey Community Bank can fully integrate the deposit records of Citizens Community Bank.”

see resources–

FDIC Failed Bank Information Page : North Jersey Community Bank, Englewood Cliffs, New Jersey, Assumes All of the Deposits of Citizens Community Bank, Ridgewood, New Jersey

Los Angeles Times : Banks fail in New Jersey and Georgia