More Signs of Stress in Banking System
NEW YORK (TheStreet) -- Not many people on Wall Street pay attention to the Federal Deposit Insurance Corp.'s quarterly banking data.
But the FDIC's Quarterly Banking Profile is a treasure trove of information about the health of the nation's banks.
In fact, my study of this report helped me predict the housing bubble and the Great Credit Crunch.
On Tuesday, I wrote that the first-quarter data reveal the continuing exposure that FDIC-insured banking institutions have to real estate loans.
Today I expand my analysis to other items of concern in the latest Quarterly Banking Profile.
After a bank determines that its balance sheet is laced with loans that have the risk of default, it increase its "Reserve for Losses," which is a direct drag on revenue.
When a loan becomes delinquent, the loan amount is listed as "30-89 Day Past Due." At 90 days in arrears, it becomes a "Noncurrent Loan."
The table below shows the data at the start of the Great Credit Crunch (the end of 2007), compared to the data for the first quarter of 2012.
Reserves for Losses ended 2007 at $102.4 billion, and as problem loans surfaced, this category rose to a record $263.1 billion in the first quarter of 2010.
The good news is that the banking system has reduced the reserve of losses in every quarter since the first quarter of 2010.
The stressful news is that reserves at $183.1 billion are still 78.8% higher than when the Great Credit Crunch began. This is another sign that the banking system remains stressed.
30-89 Day Past Due have been more than $100 billion in each quarter since 2007 except in the latest quarter.
This is a sign that fewer loans are going into default, but remember that Tuesday's analysis shows that total loan balances declined by $56.3 billion in the first quarter.
Noncurrent Loans began the Great Credit Crunch at $110.0 billion and grew to an alarming high of $405.4 billion in the first quarter of 2010 as loans cascaded through the 30-89 day category right into being noncurrent.
Banks did a good job at whittling them down to $305.0 billion by the end of the first quarter of 2012, but noncurrent loans remain 177.2% higher than when the problem loans began.
It appears that banks may have sliced reserves too much compared with the size of the noncurrent loan category.