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August COP Oversight Report: $658 Billion In Total Level 3 Assets, Small Banks Need "To Raise Significantly More Capital"

Tyler Durden's picture





 

The Congressional Oversight Panel has released its August report which contains some much more dire language about the prospects of the U.S. banking system than did the joke that was the Stress Test, especially in the small/middle bank sector.

The Panel‘s analysis of troubled whole loans suggests they pose a threat to the financial health of smaller banks ($600 million to $100 billion group). Using the same assumptions, it looks as if banks in the $600 million to $100 billion group will need to raise significantly more capital, as the estimated losses will outstrip the projected revenue and reserves. Under the "starting point" scenario, this second group of banks will need to raise $12-14 billion in capital to offset their losses, while in the "starting point + 20% scenario", non-stress-tested banks are expected to have to raise $21 billion in capital to offset their losses. The capital shortfall for those relatively smaller banks is primarily due to the lack of reserves, which on average account for only 25 percent of the expected loan losses.

 

Another useful data point is the disclosure on the total Level 3 Asset Exposure at March 31, 2009. Compliments of the FASB, over $650 billion in "assets" are being marked-to-model, and most likely overestimate the true worth of these assets by about 50%. That's $300 billion in hot air on the banks' balance sheets.

And as a tangent, in one of the better representations of "complex securities", the COP does a very good and succinct job in highlighting the tranching process of all those collateralized X obligations: maybe if Iceland had seen this 3 years ago it would not be bankrupt.

Full COP report here.

 


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Tue, 08/11/2009 - 09:39 | Link to Comment texpat
texpat's picture

Time to take the water wings off the Titanic.

Tue, 08/11/2009 - 10:05 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:07 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:38 | Link to Comment BoeingSpaceliner797
BoeingSpaceliner797's picture

Feels like we've seen this somewhere before.  A long human life ago to be precise.

Tue, 08/11/2009 - 12:52 | Link to Comment VegasBD
VegasBD's picture

It seemed hard for me to believe a lot of the CTs about the great depression, until I started seeing the same exact thing play out in front of me the last year or two.

 

All those juiced in with the NY Fed eat up all the ones who arent for pennies on the dollar.

 

 

Tue, 08/11/2009 - 15:12 | Link to Comment slashex3 (not verified)
Tue, 08/11/2009 - 12:50 | Link to Comment Anonymous
Thu, 08/13/2009 - 10:50 | Link to Comment Anonymous
Tue, 08/11/2009 - 13:31 | Link to Comment Miles Kendig
Miles Kendig's picture

AKA - The necessary process of consolidation in the banking sector.  When it is all said and done 8,500 banks will become 25 mega banks, all too big to fail.

Thu, 08/13/2009 - 14:33 | Link to Comment Anonymous
Tue, 08/11/2009 - 11:32 | Link to Comment Anonymous
Tue, 08/11/2009 - 09:47 | Link to Comment Anonymous
Tue, 08/11/2009 - 09:52 | Link to Comment waterdog
waterdog's picture

They are just getting ready for the Columbus Day banking holiday. A 5 day event wherein lock down will be the new media word.

Once the ceiling on the national debt is raised to $25 trillion in mid-September, all banks will be required to declare all assets.

Tue, 08/11/2009 - 09:56 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Why Columbus Day?

Tue, 08/11/2009 - 10:03 | Link to Comment waterdog
waterdog's picture

Because it is in October, the beginning of the new federal fiscal year.

Also, Columbus was lost when he thought he discovered America. Similar to today's people thinking they have discovered the bottom.

Tue, 08/11/2009 - 10:22 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

oh geez, sorry, no coffee here yet, Duh!

Tue, 08/11/2009 - 10:55 | Link to Comment zeropointfield (not verified)
Tue, 08/11/2009 - 19:18 | Link to Comment Anonymous
Tue, 08/11/2009 - 09:56 | Link to Comment Dixie Normous
Dixie Normous's picture

So this is why that regional bank etf, KRE, was on such a tear.  "another goddam green shoooot."

Tue, 08/11/2009 - 09:57 | Link to Comment economessed
economessed's picture

That's 658 billion reasons why Ben the Printer will continue to debase the currency.  The immediate pain of dealing with the problem in a sustainable way will not be considered.  Instead, Ben will just dump trillions of dollars of invented money into the system a few billion at a time -- stealthily eroding the American standard of living in order to protect 1/10 of 1% of the population who carry the title "masters of the universe."

Tue, 08/11/2009 - 10:39 | Link to Comment Assetman
Assetman's picture

These smaller banks are not going to be protected.

I have some exposure to a Federally chartered community bank in the Mountain States, and the regulators have already come in an mandated we fix our comercial loan portfolio in a hurry.  We've been told there will be no safety net.

Ironically, the TBTF banks will have the opportunity of a lifetime swallowing up their smaller breathern, if they play their cards right.  Just as ironic, is that so many of the TBTF's are still so poorly run, they may never get that chance.

I just can wait for mark to market to reappear...

Tue, 08/11/2009 - 11:39 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:45 | Link to Comment Bob
Bob's picture

Capitalism 2.0 

God Bless America and those who continue to hold the faith.  May your witness never waver . . . Heaven awaits those who believe!

 

Tue, 08/11/2009 - 09:58 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:02 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:16 | Link to Comment Anonymous
Tue, 08/11/2009 - 16:51 | Link to Comment Anonymous
Tue, 08/11/2009 - 22:09 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:15 | Link to Comment Tyler Durden
Tyler Durden's picture

indeed

Tue, 08/11/2009 - 12:55 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:02 | Link to Comment madmax
madmax's picture

A $300 billion gift in Bernanke bucks will make this problem go away too.

After all, the $700 billion TARP funds fixed the big banks.

And the $785 Billion in stimulus funds ended the recession.

And don't forget the $8000 check for each house sold has fixed the housing industry.

And the $4500 check for each car sold has fixed the auto industry.

There doesn't seem to be any problem that can't be fixed by these magical Bernanke bucks.

Tue, 08/11/2009 - 22:32 | Link to Comment gookempucky
gookempucky's picture

Let us not leave out the untold acres of vacant lots and subdivisions- would make great tent cities as the weeds would at least be controlled by many a tent city patron--another shush shush shoe to drop.

mo`le ru`it sua  it collapses from its own bigness

 

Tue, 08/11/2009 - 10:04 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:18 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:58 | Link to Comment deadhead
deadhead's picture

32743 was referring to 157 it would seem to me and FASB is looking to bring back mark to market in a much "tougher", i.e. realistic fashion.

FASB 140 is the SPV/SIV back to the balance sheet issue already on the books for 2010 implementation, correct?

Tue, 08/11/2009 - 10:07 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:09 | Link to Comment PragmaticIdealist
PragmaticIdealist's picture

Whoops, forgot to log in.

Tue, 08/11/2009 - 10:30 | Link to Comment Anonymous
Tue, 08/11/2009 - 13:00 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:08 | Link to Comment Joanito
Joanito's picture

Green shoot....  Should be good for another 1.75% no volume rally in the S&P.  Or at least keep it comfortably above the pesky 1,000 mark.  Now I see why Cramer can't stop blathering on about the great deal the BAC represents.  They're the leader of the pack in terms of metrics that the markets love.  I should've backed up the truck and loaded up on whoever it is that supplies ink to the treasury. 

Tue, 08/11/2009 - 10:10 | Link to Comment PragmaticIdealist
PragmaticIdealist's picture

That and the big players are going to get a lot more  business (and become even more Too-Big-To-Fail) once 90% of the lesser players dissapear.

Tue, 08/11/2009 - 10:34 | Link to Comment Joanito
Joanito's picture

Yep, the timing of this important info release seems to perfectly coincide with an as yet unannounced but soon to begin push by all of the bigger welfare recipient banks to "save the day" by buying all of the tiny, never to be bailed out, pipsqueaks whose disapearance would really get the lil' mainstreet guy out on the streets of mainstreet shouting obscenities, making those normally warm and fuzzy townhall meetings even more unsuitable for CNBC to cite as further evidence that the consumer is, in fact, alive and doin' just fine.  Yes, it'll be a public relations coup.  Obama will be re-annointed King of Chicago.  Geithner and heli-Ben will be the first ever Americans to be "knighted".  Rahm Emmanuel will get his other middle finger back.   

Tue, 08/11/2009 - 10:09 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:22 | Link to Comment NRGTDR
NRGTDR's picture

I second that motion.

Tue, 08/11/2009 - 13:31 | Link to Comment assumptionblindness
assumptionblindness's picture

Not only do we need FASB to grow a pair we also need to get IMMEDIATE IMPLEMENTATION.

Tue, 08/11/2009 - 22:17 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:09 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:13 | Link to Comment AnonymousMonetarist
AnonymousMonetarist's picture

'Tis merely preparation for Round Two.

http://anonymousmonetarist.blogspot.com/2009/04/sneak-preview-of-round-2-financial.html

'The sham stress test is Round 1, the manufactured outcome is temporary and/or stealth nationalization. Round 2 will be absorption of smaller banks by the anointed few.Keep your eyes on the prize.'

 

 

 

Tue, 08/11/2009 - 10:58 | Link to Comment Bob
Bob's picture

One can only hope that we continue to "nationalize" risks and losses of the TBTF crowd as they grow bigger.  Otherwise, we'll be in even deeper shit . . .

It will soon be time for us all to face the fact that they own us, plain and simple. 

It's been a coup d'etat, American Capitalist style. 

There's never been a more useful red herring than "socialism." 

Tue, 08/11/2009 - 10:22 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

HEY TYLER!

 

Call me crazy, but in the Appendix, Geithner's July letter about Money Markets ought to be read and discussed, don't ya think?

Tue, 08/11/2009 - 10:52 | Link to Comment zeropointfield (not verified)
Tue, 08/11/2009 - 10:35 | Link to Comment Anonymous
Tue, 08/11/2009 - 10:55 | Link to Comment Bob
Bob's picture

Sweet. 

Tue, 08/11/2009 - 10:47 | Link to Comment SWRichmond
SWRichmond's picture

Let's not forget the CDO Squared process of using one mezzanine tranche as the basis for a whole new CDO, replete with its own AAA senior and super-senior tranches:

http://books.google.com/books?id=w9jIQuZIWPUC&pg=PA59&lpg=PA59&dq=cdo+sq...

"Most of the A- and BBB-rated CDO tranches are recycled into CDO of CDO (CDO Squared) securities, about 85 percent of which are comprised of AAA-rated senior and super-senior tranches.  These CDO-squared and strucutred finance CDOs were created almost solely to resecuritize MBS and CDO Mezzanine tranches, for which there was not sufficient demand from investors."

Can't sell it because it's junk?  Repackage it, apply formulae provided by MIT math whizzes, and, magically, out comes 85% AAA-rated stuff, which meets criteria for "investment" by pension funds, etc. in other words, lie, cheat, and steal.  Same old shit, this time brought to you by greedy MIT grads.

Should we review negative basis CDO trading?   http://www.ft.com/cms/s/0/88e590f0-d4f8-11dc-9af1-0000779fd2ac.html

Yes, there WAS such a thing as risk-free trading, contrary to what some commenters here have asserted.  This "risk-free" premium was directly stolen from taxpayers, who now bear the cost of bailing out the "risk-free" trades.  This is theft, plain and simple, and it is time for clawback in a big way. 

Tue, 08/11/2009 - 10:50 | Link to Comment SWRichmond
SWRichmond's picture

Or, maybe just "claws".

Tue, 08/11/2009 - 11:19 | Link to Comment Anonymous
Tue, 08/11/2009 - 13:38 | Link to Comment Anonymous
Tue, 08/11/2009 - 15:13 | Link to Comment slashex3 (not verified)
Tue, 08/11/2009 - 14:45 | Link to Comment Anonymous
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