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US Banks Are Not "Sound", Fed Report Finds
Submitted by Simon Balck via SovereignMan.com,
Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system.
Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.”
This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries.
Make no mistake; this is not chump change.
The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing.
Bear in mind that, in banking, there are three primary types of risk, at least from the consumer’s perspective.
The first is fraud risk.
This ultimately comes down to whether you can trust your bank. Are they stealing from you?
MF Global was once among the largest brokers in the United States. But in 2011 it was found that the firm had stolen funds from customer accounts to cover its own trading losses, before ultimately declaring bankruptcy.
It’s unfortunate to even have to point this out, but risk of fraud in the Western banking system is clearly not zero.
The second key risk is solvency.
In other words, does your bank have a positive net worth?
Like any business or individual, banks have assets and liabilities.
For banks, their liabilities are customers’ deposits, which the bank is required to repay to customers.
Meanwhile, a bank’s assets are the investments they make with our savings. If these investments go bad, it reduces or even eliminates the bank’s ability to pay us back.
This is precisely what happened in 2008; hundreds of banks became insolvent in the financial crisis as a result of the idiotic bets they’d made with our money.
The third major risk is liquidity risk.
In other words, does your bank have sufficient funds on hand when you want to make a withdrawal or transfer?
Most banks only hold a very small portion of their portfolios in cash or cash equivalents.
I’m not just talking about physical cash, I’m talking about high-quality liquid assets and securities that banks can sell in a heartbeat in order to raise cash and meet their customer needs to transfer and withdraw funds.
For most banks in the West, their amount of cash equivalents as a percentage of customer deposits is extremely low, often in the neighborhood of 1-3%.
This means that if even a small number of customers suddenly wanted their money back, and especially if they wanted physical cash, banks would completely seize up.
* * *
Each of these three risks exists in the banking system today and they are in no way trivial.
Very few people ever give thought to the soundness of their bank, ignoring the blaring warning signs that are right there in front of them.
Every quarter the banks themselves send us detailed financial statements reporting both their low levels of liquidity and the accounting tricks they use to disguise their losses.
Now we have a report from Fed and the FDIC, showing their own concern for the industry and foreshadowing the solvency risk I discussed above.
Every rational person ought to have a plan B to hedge these risks. And I would propose three methods:
1) Transfer a portion of your funds to a much safer, stronger banking jurisdiction, preferably one with zero net debt.
2) Hold physical cash. Physical cash serves as a great short-term hedge against all three risks, with the added benefit that there’s no exchange rate risk. All you have to do is go to your nearest ATM machine, take out a small amount at a time and build up a small pool of cash savings.
3) Hold gold and silver.
While physical cash is a great short-term hedge against risk in the banking system, gold and silver are excellent hedges against long-term risks in the monetary system and global financial system as a whole.
There may be a time where we are faced with the consequences not only of a poor banking system, but also of decades of wanton debt and monetary expansion.
At that point, the only thing that will make any sense at all is direct ownership of real assets.
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Show em the VAR models again Jamie!
"Obsessive compulsive gamblers found to be 'not so good with money'. Film at 11."
It's always the liquidity with banks...nothing else matters. As soon as daily wholesale funding starts to get scarce it's game over.
The Fed fails again. It is the Feds job to monitor their member banks and force adjustments. Letting them become unsound is announcing the Feds own failure and unfortunatiely ours.
Isn't that like being the herpes inspector at a whorehouse? You can't announce any single "point of failure" without inducing broad panic.
Fractional-reserve banks can be "sound"?
And the enablers and pushers of fractional-reserve lending are the ones to judge this?
For a nominal fee... :)
Funny, but NO. If it’s not inspected, it’s neglected.
In the strongest terms, that is a feature, not a bug.
It may be but the Federal Reserve will never change until it has its "University of Missouri moment".
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.wallstreet34.com
My last paycheck was $3971.48 for the month, after taxes of course.
So you're making 38,000 a month online?
That's pretty good. You'll have to show me how it's done.
No, really. YOU'LL HAVE TO SHOW ME HOW'S IT DONE.
Because I work for the IRS and I've already pulled up your quarterlies, which seem to be a little short on the income side.
VAR doesn't count for much when everything's being marked to model rather than marked to market.
DavidC
You worry too much. [/Tommy DeVito, Goodfellas (right before he was killed)]
must be true because The FED said it
Nothing 15 minutes and a stress test won't fix.
How about JAIL time for these crooks. It sure isn't God's work they are doing.
only took them seven years to figure out what I knew the before the last megabailout
Amazing,,, an unsound central bank stating it's banks are unsound,,, and a massively underfunded FDIC concurring.
The stupid meter is pegged out but doesn't seem to stop things from getting stupid(er).
These people are clearly out of their minds and we're not far behind letting them continue like they are.
The psychopathic Banksters, Politicans and Corporate assholes are destroying the world. Let the End Game begin! It's back to survival of the fittest!
Why would they be sound when they have learned like Pavlov's dogs that they don't need to be sound, they need to maximize their bonuses.
Tanks in the street Hank Paulson bailout/TARP #2. This time Jack Jew does it.
TBTF banksters lighting up their cigars with Fed $100s again.
Then when you withdraw your money in cash the banks notify the government; you are pulled over by the police and your monies are taken from you under asset forfiture laws.
Why do you need to prove why you have whay some consider a large amount of cash with you? When did this become illegal?
1913
Why do I suddenly have a craving for pancakes?
I guess.
That is, if you don't live in Kentucky.
Never had, never heard of anyone else having that problem here.
Besides, when you move here and are one of the smartest bears in the woods, you'd be amazed at the shit that you can get away with here.
Molan Labe motherfuckers!
Then when you withdraw your money in cash the banks notify the government; you are pulled over by the police and your monies are taken from you under asset forfiture laws.
Why do you need to prove why you have what some consider a large amount of cash with you? When did this become illegal?
1913
It's been groundhog day for awhile now, need to get these damn peepers checked again.
The way the market is supposed to work is this; if you cannot pay your mortage, you stand to lose your house. And if a bank makes enough foolish loan decisions, giving loans to borrowers that end up unable to repay, for whatever reason, that bank should go out of business. This latter statement is what regulates good, solvent banking and the money supply, as it becomes created by loan-making.
It's not like at all It's a Wonderful Life. When banks fuck up, they should go out of business, and their assets should be sold-off. The notion that banks should be protected from any or all economic downturn is preposterous. These downturns are not unforeseeable. This is not about Uncle Charlie misplacing an envelope stuffed with bank money. This is about ignoring the odds of risk markets.
ZIRP was affected to protect banks from just such a downturn, a convergence of a great multitude of risky loans being made by many grossly negligent banks, all of which should go out of business. Unless we all honestly think all of us, including those who are having their homes foreclosed upon, should be willing to continue to support these poorly-run banking institutions.
And of course, that is clearly not the case. This is not about rallying public philanthropy to extend to banks that have come upon hard times due to no fault of their own. These banks are guilty of repeatedly ignoring very obvious risks.
This article is bogus. When Black states the following:
"The total exceeds $3.9 trillion worth of risky loans that US banks made with your money."
The $3.9 trillion number is total syndicated credit granted in the U.S. last year, NOT loans classifed by regulators as substandard. This number is $373 billion, or 9.4% of the larger total. Also, foreign banks accounted for 34% of credit granted last year, so the issue is smaller for U.S. banks.
I don't see anything that sez its just based on loans made last year. It is a cummulative downgrade of loans that the Banking industry has in its portfolio. IMO the NEW loans made to the energy sector in the last 18 months are very minimal and would not come close to $3.9 Trillion but I would guess that a sizeable percentage of those write downs would be energy loans made in the last 8 years.
As my old Pappy used to say "You can fool all of the people some of the time, and some of the people all of the time, and those are very good odds."
I would point out that, even though I believe we are in quite a frail situation, it is not as bad as 1-3% cash equivalent in the bank. After the 2008 crisis, with the Dodd-Frank and Basel regulations, the stated core capital level in Western banks is in the 8-9% range.
I agree on the article's recommendation of holding some gold and cash. I would add some Bitcoin, too. I'd be just ready to fill the pantry with some non-perishable food before the helicopter waters us with inflation.
Between 1985 and 2005 73% of small banks disappeared, and between 2005 and 2014 40% of the remainder disappeared. Nearly two thousand credit unions have shuttered since 2007. Meantime total number of bank branches expanded by 39% and 9%, respectively. In other words the multi-decade long industry consolidation grinds on; the next crisis will simply accelerate the process.
At that point, the only thing that will make any sense at all is direct ownership of real assets.
Not good enough... extend that advice to...
At that point, the only thing that will make any sense at all is direct ownership of real assets that nobody knows about or can tax.
Otherwise, predators-that-be will simply "confiscate your assets slowly" via taxation.
Echoing honestann's comment:
"At that point, the only thing that will make any sense at all is direct ownership of real assets that nobody knows about or can tax."
Why wait until "that time" to acquire real assets beyond cash, gold, and silver, like transportation (cars, trucks), machinery, tools, hardware, guns, ammo, seeds, building supplies, etc.
It seems to me a rational person would want and need tangible assets just for basic survival, which begs the question, just what level of survival does one want?
Most people think they're safe if they have six months of bills stashed away in cash, some canned goods, the rent paid and electricity and heat supplied by a regional or local utility.
Those with a more acute level of paranoia/preparedness opt for land, with water, trees and arabale acerage, seeds, underground storage, wood-buring stove, solar panels or windmill or both for electric generation, plus a gas-powered generator, a well-built shelter (call it what you will, a shed, cabin, home, tent, etc.) and distance from the predators-that-be (taxmen, police, DHS, enemy combatants, illegals, etc.)
I am of that second camp and I enjoy it. And, I find it more pleasurable every month when I DO NOT GET A UTILITY BILL. Wood-buring stoves for heat and solar for electric (or battery power for low-mainentence people like me) are not for everybody.
I also use the free wi-fi at the local public library (they also allow you to charge your cell phone and laptop for free) and I run a couple of websites, so no cable/internet bill either.
Bottom line, thrift (something our THRIFT insitutions have forgotten) is always in vogue.
Do you feel like a rat in a maze with more and more avenues of escape being cut off?
SOUND BANKING ??!! What about SOUND MONEY whose supply is controlled not by a few, but by The citizens of the sovereignty involved? The Fed will simply "help out" the Fed shareholder banks that need a lifejacket. The other non Fed shareholding banks will be heaved an anchor.
I like to ask financial types why it makes sense for our nation to rent money when we could issue it ourselves debt free?
#1 Answer..."You don't want politicians in charge of the money supply do you?"
followed by, "you just can't understand..."
Hats off to Jim Willie and friends as theyhave been continually a couple of months ahead of the curve on this and several other financial imperatives that have come down the pike lately. The banks are holding the wrong end on derivatives with big oil pegging oil sales at much higher per barrel sale costs; perhaps $100 a barrel which the banksters have to make up the differenvce on until they deals run out. At the other end the banksters also own a shitload of junk bonds for the now defunct at current prices shale oil industry. Willie and friends believe the Fed is secretly QEing these bankster losses to the tune of high hundreds of billions a month, perhaps a trillion, but we'll never know if its all done off balance sheet. Lets think on it the banksters have to make up $50 a barrel or so for a large percentage of every barrel of oil produced everyday until the contracts run out.....
This is soooo...1930s or 2008
The Fed.... reporting on "soundness" of financial institutions... ROFL.
US Banks Are Not "Sound"
Translation, they have too many liabilities...aka deposits
The timing is probably key. When the Fed announces problems, it means they are afraid the issue can't be covered up, are establishing their basis for conitnuing power after the crash.
Calling highs and lows is not possible until after the fact, of course, but it seems to me that very many trends are 'down', and have been for a long time. Our gov's statistics are all lies, and have been for a long time.
The fact that they have to lie means they are definitely not working for our interests. They really should not forget our interests.
https://thinkpatriot.wordpress.com/2015/11/10/were-still-going-to-be-here/
A lot of the future is already set into the system, the dynamics play on.
https://thinkpatriot.wordpress.com/2015/11/10/a-measure-of-propagandas-p...
This speaks a lot about deposits, but equally risky and mostly overlooked are the crap people keep in safe deposit boxes. My bank is only useful to me to the extent I can write the 5-10 monthly checks I need to and hold my direct deposited pay checks. Beyond that, I don't keep anything in a bank, and dutifully convert every spare fiat dollar to something else almost immediately.
-Argenta
The Fed is not sound. It is corrupt, making it not sound. However, it can create all of the money it wants out of thin air. It can maintain the corrupt international banking system, cause the US government to murder people all over the world and have anything it wants propagandized by the media ... I call that not sound in mind and body. The Fed lacks balance.
“continuing gaps between industry practices and the expectations for safe and sound banking.”
WHAT EXPECTATIONS?
Congress told FASB to allow banks to lie about the value of assets.
So what expectation can there possibly be for safe and sound banking?
exactly
Obviously, a few trillion in bad loans will leave a mark. But, what I really worry about is the $1 quadrillion in derivatives that are neither marked to market or even recognized as risky assets on balance sheets (thanks to improper netting.)
A tiny 0.25% decline in the value of their derivatives portfolios would wipe out all Tier 1 capital at JPM, GS, C and BAC -- which, together, have $180 trillion in derivatives.
http://pebblewriter.com/banks-wipeout-ratio-an-update/
Just setting the scene for the next tax payer funded Bailout, a ban on cash to fight crime followed by negative interest rates.