Monday, December 14, 2009

Failed Banks: What was knowable when?

Bank failures happen at close of business on Fridays. A team of operatives from the FDIC shows up at the door and by the time those doors open again on Monday morning the bank has been inventoried, valued and transferred to a new owner. This story institutional devastation has happened so many times in 2009 that it become a footnote fixture in the weekly wrap up of financial news. Americans don't quite understand how it really works except to take assurance in the fact that the Federal Deposit Insurance Corporation (FDIC) somehow takes care of them even as tumult rages on.

So is it possible to see this kind of trouble heading towards a bank? And if so, how far in advance of disaster do the indications begin to reveal? That's the question that comes across my desk frequently. Everyone wants to know if the IRA Bank Monitor can see it coming. The direct answer is yes. IRA's A+ through F grading system was in fact developed specifically to illustrate these Bank Stress Indices or BSI's so as to begin warning early enough while there might still be time for bank directors and officers to attempt to avoid or mitigate a crisis that could result in regulatory action. But not all banks make it. For some, the fate of failure manifests. It is from these that it's possible to study the "What went wrongs?" so that the clues in the rubble can help others avoid the same fate.

On December 11, 2009 the FDIC closed three banks. The links point to IRA's Failed Bank History Report that shows the prior twelve (12) quarters of stress history for the failed institution. They are presented here as forensic examples.

Solutions Bank
in Overland Park, Kansas

Valley Capital Bank, N.A.
in Mesa, Arizona

Republic Federal Bank, N.A.
in Miami, Florida

I highly encourage serious students of banking and bank risk to study them. Reports on live institutions are available to subscribers at .

1 comment:

  1. Hello IRA,
    On your recent posts, Bravo supporting ordinary americans' deposits. For those Banks pay core deposit intangibles; it should spur the CSuite to cease further support of non-tarrif'd trade agreements that have been off-shoring production and associated jobs.
    This also includes US compliance with G20 agreements, which in effect have been to constrain the US economy. Those 'constraints' have been effectuated exist in 'free', non-tariff'd trade agreements, and other self serving schemes of powerful sectors - the BigFinancials to plunder what's left before they collapse Amerika’s roof.
    Consider if people's jobs get off-shored and the economic collapse that this sort of negative wealth effect has been producing, banks bare in their own pockets the diminished deposit base.
    Riding the yield curve and cheap funding exist only because the Fed has kept rates again abnormally low giving the banks their carry trade into easy gains.
    Banks too have been claiming fee income from their bogus OTC deriv parasitic activity and trading, while using legitimized fake financial statement instruments is their gravy train to ride out the storm whether that storm is artificial or marshaled by powerful people who can bring true reform to the system.
    I've yet to see any of the later sort, while most are looking to make a new way or feed from the legitimized fleecing with the current financial SPE/OTC enronesque pocket stuffing bonanza also having been used to finalize 'collapsing' to meet G20 constraints.
    Back to the negative wealth effect from off-shoring production, if you off-shore someone's job and consider we've been witnessing en masse off-shoring, then the unemployed also have difficulty or fail to be able to fund their 401k(k)s. Meanwhile with dwindling core deposits, consolidation doesn’t improve when wealth development has been destroyed and savings have been devoured for survival.
    With the hiving away the assets from the hands of the many into the hands of a few, there are lots of ways to characterize what we're seeing - contemporary corporate colonialistic americanized nazi feudalism. But either way, bankers think they've got it under control.
    They got bailed out however, regardless of whether they think it’s under control their booty is more than the masses have; in the economy sr management spends that looted means upon having purloined it and plundered away from others. Legitimized financial instrument fraud however so that banks can counterfeit revenues and in effect print money with their OTC derivatives is another tyranny, economic evil and treason.
    Given that, among the many things that needs to change is the repeal of the Commodity Futures Modernization Act while separating originations from structure/securitizers.
    I may not attack Gramm Leach Bliley, however private label's contempt for clean underwriting and responsible, functional checks and balances definitely should be punished. The survivors were about as guilty as the failures. I wouldn’t say that FNM and FRE were at fault or the problem when the private label also had powerful lobbyists and trade associations. Assuming a 1-4 family mortgage with a 10% of 20% down payment originated to people who have virtually perfect credit needs the same amount of capital as a commercial bank or investment banking taking serious risk is ? sort of cockamamie. But that's where the argument has slunk and devolved.
    In plain vanilla banking, banks that played it safe and originated conforming mortgages while serving their communities' needs for commercial and thrift banking probably will survive this contraction. The real test will be if this government stops contrary policies that have been collapsing our economy and feeding the parasitic BigFinancials and their parasitic OTC enronesque derivative activity while remaining the industrial activity turns around spurring those banks and thrifts in those communities.