Monday, April 26, 2010

http://chicago.dbusinessnews.com/viewnews.php?article=bwire/20100426005495r1.xml




Stress Test Redux: The Banks are Still in Trouble


LAKE BLUFF, Ill.--(BUSINESS WIRE)-- Out of a total of 15,730 banks and credit unions in the US, there are 7,349, or 46.7 percent, short capital and need to maintain a high level of liquid funds to keep themselves in business. Unfortunately, these institutions are the home of over 60 percent of America's small businesses, the ones which create jobs, according to economist Michael Moebs of Moebs Services, who recently updated his firm's nationally recognized Treasury Stress Test of 2009
"If small businesses and consumers want to find out why the economy is not recovering, they just have to look at the number of community banks and credit unions that need capital," says Moebs.
Moebs is an economist and CEO of Moebs Services, Inc. an independent economic research firm located in Lake Bluff, IL. Using the Treasury Stress Test his firm conducted last year, Moebs Services recently updated the stress test criteria for all banks and credit unions and found the following:
With a shortage of capital, community banks and credit unions could not make loans to their small business clients. - "Community Banks and credit unions service 20 million of the 27 million small businesses, and no loans to small businesses means no job creation," said Moebs.
The balance sheet of all depositories, chart below, shows assets shrunk 4.7 percent as did loans by 7.8 percent. The impact of the TBTF banks distorts this picture. Attempts by community banks and credit unions to make loans were restricted by lack of capital which can grow only by net income; both types of institutions lost money in 2009. Also, bad real estate and repossessed loans grew by 50.4 percent or $14.4B, primarily in the Main St institutions. The TBTF institutions also paid off much of their debt, reducing leverage and shrinking assets.
Credit Unions
The Treasury Stress Test was conducted for only 19 of the largest banks in 2008. A 4 percent capital to asset benchmark was used and Mortgage Backed Securities and Commercial Real Estate loans were pegged at 100 percent value because the TARP Act said securities didn't have to be market to market and the value of commercial Real Estate loans was unknown. Using the values shown in the chart below Treasury said the 19 large banks were short about $120 Billion in capital.

Stress Test Factors
"If the same values used by Treasury were used on all banks and credit unions in 2008, Treasury would have identified 2,272 institutions needing $189 Billion," according to Moebs. Now a year later, using the known loan delinquency factors, all the loans including Commercial Real Estate were adjusted and Mortgage Backed Securities were valued at 75 percent, as well as using 4 percent for capital for the big banks and 8 percent for everyone else. Moebs says, "Our analysis shows that 7,349 depositories need $254 Billion in additional capital. The actual balance sheet data and the stress test criteria point out, banks and credit unions are still in bad shape."
About Moebs Services
Michael Moebs is an Economist and the CEO of Moebs $ervices, headquartered in Lake Bluff, IL.For more than 27 years, Moebs $ervices has been collecting and analyzing primary empirical data about financial institutions' services, pricing, operating expenses and financial condition in a counter intuitive manner which provides simple solutions to complex issues since 1983.

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