FDIC Reports Positive Banking System Data

Home Equity Loans : The problem in this category is the exposure where the bank holding the line of credit does not hold the first lien mortgage. Home equity loans are down 6.6% since the end of 2007 to $567.3 billion. In recent quarters the decline in this category of loans has been accelerating; 5.3% year over year in Q4 2011, 0.4% year over year in Q1 2012, 5.7% in Q2 2012, and 6.7% in Q3 2012.

Other Real Estate Owned (OREO) : This asset class has been declining since peaking at $53.2 billion in the third quarter of 2010. This is still a source of stress in the banking system because at $41.0 billion it is up 238.0% since the end of 2007.

Notional Amount of Derivative Contracts : Is also a source of continued stress in the banking system. At $229.3 trillion it's up by $63.2 trillion or 38.0% since the end of 2007. Since the end of 2007 the banking system should have de-leveraged, but has not. I still say that time bombs are ticking in this category.

Deposit Insurance Fund (DIF) : While the FDIC has been making progress on replenishing the DIF, it's is only funded at 0.35% of insured deposits. By September 2020 this percentage must rise to 1.35%.

Insured Deposits : While the DIF is down 51.9% since the end of 2007 to $25.2 billion, insured deposits are up 68.9% to $7.25 trillion. As deposits grow the size of DIF must increase, which is another source of stress.

Reserves for Losses : The banking system has been reducing reserves for losses since it peaked at $263.1 billion beginning in Q2 2010. Now at $167.0 billion, reserves remain 64.2% above the level of 2007. This shows that there are additional bad assets that need to be unwound.

30-89 Day Past Due : As real estate loans began to default this category peaked at $157.9 billion in Q1 2009. Since the pace of bad loans has slowed this category has slowed to $87.0 billion in Q3 2012, down 21.6% since the end of 2007.

Noncurrent Loans : The peak in this bad loan category was $405.4 billion at the end of Q1 2010. While significantly lower today at $292.1 billion it's up $182.2 billion, or 165.8% since the end of 2007. This is another sign that the banking system continues to experience the effects of the great credit crunch.

In summary, while the banking system has been slowly but surely reducing exposures to bad real estate loans overall stress in the banking system remains. Tomorrow I will update my profiles for several stocks in the money center and regional banking industries.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.