http://finance.yahoo.com/banking-budgeting/article/107585/what-the-stress-tests-did-not-predict.html?sec=topStories&pos=1&asset=&ccode=
How much more are you willing to give to keep the Titanic afloat?
With that in mind, Christopher Whalen, managing director at Institutional Risk Analytics, a research firm, has analyzed financial data from the second quarter of this year that almost 7,000 banks submitted to the Federal Deposit Insurance Corporation. The data includes 90 percent of institutions with federally insured deposits but excludes reports from the 19 money-center banks like Citigroup, Bank of America and Wells Fargo. Those reports are filed later to the F.D.I.C.
Even with the big guys missing from the analysis, it is an illuminating look at the health of regional and community banks and a fairly comprehensive assessment of the industry's well-being.
Unfortunately, that assessment shows that the number of financially sound banks is declining and that the ranks of troubled institutions are growing. Indeed, Mr. Whalen said his figures show more stress in the banking industry in the second quarter of 2009 than in the immediately previous periods.
For example, Institutional Risk Analytics gave 4,234 banks a rating of A+ or A (as a measure of their financial soundness) as of June 30. That total was down 21 percent from the end of March and 25 percent from the end of 2008. Meanwhile, it slapped a failing grade on 1,882 banks as of June 30, up 16.5 percent from the end of March; the number with failing grades had dropped a bit in the first quarter.
This downward migration is a sign that more banks are now feeling the effects of economic conditions regardless of their business models, Mr. Whalen said. In other words, even the best-run banks are having trouble escaping the impact of a sluggish economy and high unemployment.
Based on his preliminary review of individual bank reports, Mr. Whalen said the greater stress across the industry results from the large number of banks getting dinged by losses or charge-offs. The figures, Mr. Whalen said, call into question assumptions made by the government earlier this year, when it put major banks through "stress tests."
In short, the tests may not have been tough enough.
