The Stress Test You Don’t Read About
Bill Warner Saturday, May 09, 2009
Well, great news. The banks have passed the stress test; although some have to raise some more money, no problem. We have bottomed out, and back on the mend. Right? That’s what most of the media and the administration are telling us. So, it must be true.
There’s another stress test in town
Not so fast. Take a look at this report in The Nation about another stress test done by The Institutional Risk Analytics Bank Monitor (IRA). This is the group that provides an independent assessment of the banking system to organizations like the FDIC. Their report is the exact opposite of the administrations stress test. IRA claims that there is a dramatic increase in the stress in the US Banking system, mainly driving by the loss of stability due to negative net incomes of over 1,500 banks. IRA’s Bank Stress Index jumped three fold since the end of 2008.
It’s not all about Wall Street
The administrations stress test might have some good news about the large Wall Street banks, but is sure missed what is going on in the rest of the banking system. What they are missing is the slow but sure deterioration over the last nine months of the nations other banks. This has been driven by business failures and loan losses that continue to mount. These banks cannot just live on interest alone and cannot make up for these losses with new service charges. The result now is that an increasing number of US banks are on the brink of failure. This may be why it is still so hard to get a loan. Do you think?
Keep tightening the belt
The best advice I can think of is to keep tightening the belt and run your businesses with extraordinary discipline. A large portion of the banking system is not going to be able to help much for quite awhile. Search for the banks that are truly financially healthy, both in profit and balance sheet strength.
Filed Under: Business Operations, Managing Business Financials
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
