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Tuesday, August 11, 2009

Congressional Oversight Panel Warns of Threat to Smaller Banks

by Calculated Risk on 8/11/2009 08:38:00 AM

From MarketWatch: Oversight panel: Losses could pose threat to small banks

According to a report from the Congressional Oversight Panel, which is charged with overseeing the $700 billion Troubled Asset Relief program, or TARP, the 18 largest financial institutions with over $600 million in assets would "be able to deal with" whole-loan portfolio losses.

However, the report's analysis of troubled whole loans -- based on a model developed by SNL Financial -- suggests they pose a threat to smaller public banks, those with $600 million to $100 billion in assets.
Here is the report: August Oversight Report: The Continued Risk of Troubled Assets
The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans. The problem is compounded by the fact that banks smaller than those subjected to stress tests also hold greater concentrations of commercial real estate loans, which pose a potential threat of high defaults. Moreover, small banks have more difficulty accessing the capital markets than larger banks. Despite these difficulties, the adequacy of small banks‘ capital buffers has not been evaluated under the stress tests.
emphasis added
The FDIC will stay very busy.