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David Stanowski
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Will Your Bank Fail?
by David Stanowski
17 April 2009

The government continues to greatly underestimate the magnitude of the current debt crisis. The FDIC's "Problem List" of troubled banks includes only 252 institutions with assets of $159 billion. However, based on the independent, and much more accurate analysis by Weiss Research, a total of 1,568 banks and S&Ls, with total assets of $2.32 Trillion, are at risk of failure due to weak capital, asset quality, earnings, and other factors. A link to the list of the 1,568 banks and S&Ls that are likely to fail is included in this article.

Regardless of all of the bailouts, the banking sector is still in a fragile state. A key measure of the financial health of banks is the ratio of tangible equity capital to total assets. The top 20 financial institutions have an average tangible equity capital cushion of only 3.3%!!

In other words, many of these banks would only have to be forced to write off another 3 to 4% of the value of their toxic assets to wipe out ALL of their remaining tangible equity capital; making them insolvent! Many banks are already technically insolvent, surviving only because of taxpayer bailouts.

Citigroup, for example, would have its capital wiped-out with another asset write-off of just 1.5%; for Bank of America a 2.6% write-off would do it!

The credit crisis wreaking havoc in the financial sector is far from over and full recovery may not be realized for many years to come.

Bank Equity

William Black, the former Chief Fraud Investigator at the Federal Home Lending Bank and Office of Thrift Supervision during the Savings and Loan scandal, calls the current bank stress tests "A COMPLETE SHAM". The FHLB is a very big institution, with $1.3 trillion in loans, and its Chief Fraud Investigator during the S&L scandal, says a pillar of Federal banking reform policy is “a complete sham.”

Mr. Black also called the stress test “a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough. Black also said, “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian.” 
Banana Republic

Nouriel Roubini says that 
Q1 data on the three variables used in the bank stress tests – growth rate, unemployment rate, and home price depreciation – are already worse than those for the more adverse scenario in the tests!

The banking system is at risk, so it is no time to have money on deposit in weak banks. Do not count on the FDIC, because its "insurance fund" could easily be wiped out by a large-scale collapse, and unable to pay off depositors.
FDIC Woefully Underfunded; Problem Insitutions Soar

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