Sunday, November 30, 2008

Troubled Banks in 1991 Were 25X Worse Than Now

From a comment by "stilettoheels" on this CD post: "Yep. The commercial banks are in just fine shape. Bottom line: In Q3.08, the banks are back to the early 1990s recession by most measures. Once the early 1980s are taken out, then it will be the Great Depression II."

The top chart above shows the number of FDIC "problem institutions" annually back to 1990 (year to date for 2008). There are currently 171 problem banks, which is higher than the peak of 136 problem banks in 2002 following the 2001 recession, but far fewer than in the earlier years like 1990 (1,496 troubled banks), 1991 (1,430), 1992 (1,066), 1993 (575), 1994 (318) and 1995 (193).

The 171 banks currently identified as "problem institutions" have assets of $116 billion, which is 1.04% of the total commercial bank assets of $11,115 billion average for 2008, and only 0.97% of total bank assets of almost $12,000 billion for October 2008 (data here). The bottom chart above shows that the current level of about 1% of bank assets being held by troubled banks is nowhere close to the levels of 10-25% in 1990, 1991, 1992 and 1993. So by this measure, troubled banks in the early 1990s were 10 to 25 times "more troubled" than banks today.

Bottom Line: In 1990 there were almost 9 times as many troubled banks as today, and in 1991 the percent of total bank assets held by troubled banks was about 25 times higher than 2008. We're nowhere close to the troubled bank situation of the early 1990s. As in 25 is a much bigger number than 1, and 1 is nowhere close to 25. And if we're not even close to the weak banking conditions of the early 1990s, we're light years from Great Depression II.



At 11/30/2008 11:31 PM, Blogger wcw said...

Funny, I just updated a little series I've been watching, total borrowings of depository institutions from the Federal Reserve as percentage of GDP. In March 1990, this ratio hit 0.04%, and its 1991 peak was 0.01%.

Its current level is 4.50%, over 100x worse than 1990.

At 12/01/2008 6:34 AM, Blogger stilettoheels said...

The 171 banks currently identified as "problem institutions" have assets of $116 billion

Yep. Washington Mutual (the largest bank failure in U.S. history) wasn't even on the "problem institution" list.

Curiously enough, you made no reference to the failed assets of failed banks relative to the S&L crisis.

The FDIC quarterly bulletin points:

...almost one in every four institutions (24.1 percent) reported a net loss for the quarter, the highest percentage in any quarter since the fourth quarter of 1990, and the highest percentage in a third quarter in the 24 years that all insured institutions have reported quarterly earnings

...over the 12 months ended September 30, the industry's interest-earning assets were up by only 4.2 percent, the lowest 12-month growth rate in more than six years

...the quarterly net charge-off rate in the third quarter was 1.42 percent, up from 1.32 percent in the second quarter and 0.57 percent in the third quarter of 2007. This is the highest quarterly net charge-off rate for the industry since 1991

...the percentage of total loans and leases that were noncurrent rose from 2.04 percent to 2.31 percent during the quarter and is now at the highest level since the third quarter of 1993

...this is the tenth consecutive quarter that the industry's coverage ratio has fallen; it is now at its lowest level since the first quarter of 1993

...this is the first time since the middle of 1994 that assets of "problem" institutions have exceeded $100 billion

And if we're not even close to the weak banking conditions of the early 1990s

If you read the bulletin points, your opinion might be different. BTW, I fail to appreciate your fixation with the number of institutions (great depression...10000 bank failures...blah blah), it's the assets of the institutions that is determinative.

Sheesh, my apologies, this is almost a 25000 word buggy-like essay.

At 12/02/2008 4:41 PM, Blogger misterjosh said...

Your numbers are meaningless without percentages. There are something like half as many banks now as there were in 1940, and I can't find information for before that.

At 12/02/2008 5:51 PM, Anonymous Anonymous said...

Don't ask me for numbers, but when banking institutions that have been around for well over a century (ie, Lehman) and survied the depression as well as this so-called 1990's banking disaster, only to fail now, I have to dismiss it as numbers-cooking. A lot of big banks disappeared this year. I don't recall that happening in the 90's. Nope. And 90's banks sure weren't "asking" for 700 billion in bailout money (but have gotten well over 1 trillion so far... sheeze, the national debt was only 1/3 that back in the 90's!).

If banks really aren't failing, then I guess all the posts on this blog about how terrible homebuyers are... well, what?! I guess there aren't that many dead-beat borrowers either! That's what I hate about this site. Double speak. The banks aren't failing, but borrowers are failing to repay. Doesn't make any sense...


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