I Hope My Bank Doesn’t Have All Its ‘Capital’ In Junk Loans

Downey Savings, and then not far behind them, First Federal and Washington Mutual are going to have all the "capital" in junk loans.  No one should have any faith in the banking system and should move their money out of banks and into the brokerages like schwab where there has been no lending.  If your money is at Downey, it was used to make a loan to some homeboy in riverside and said homeboy has left the shizzle and the keys with Downey.

NEW YORK (AP) — The rapid pace of asset quality deterioration may force some banks to raise capital fast, or face regulatory review, a Friedman, Billings, Ramsey analyst said Wednesday.

Banks with a rapidly increasing non-performing asset to risk-based capital ratio will likely experience the scrutiny of regulators, FBR analyst Paul Miller wrote in a research note. A ratio approaching 100 percent could trigger sanctions or penalties, but any rapidly increasing ratio could spark a review.

At the end of 2006, no bank’s ratio of non-performing assets to risk-based capital was above 19 percent, Miller wrote in the note. At the end of the fourth quarter, both Downey Financial Corp. and IndyMac Bancorp Inc.’s ratios exceeded 50 percent. Both ratios were below 8 percent at the end of 2006.

Those with ratios above 20 percent include Washington Mutual Inc. at 21.8 percent and the nation’s largest mortgage lender, Countrywide Financial Corp., at 29.2 percent. Earlier this year, Bank of America Corp. agreed to acquire Countrywide for about $4 billion in stock. Bank of America’s ratio stood at 4.2 percent at the end of 2007.

Miller said many banks ratios could rise above 100 percent within the next year.

Non-performing assets have increased rapidly as more types of loans default. Banks’ definition of non-performing assets can vary with more conservative banks categorizing a loan as non-performing when it is 90 days past due.

Miller said he expects non-performing assets to continue to increase, meaning the only way banks can avoid potential regulatory problems and sapping their current reserves is to raise cash to shore up their capital base.

Potential regulatory actions could range from memorandums of understanding that outline corrective actions to improve the bank to cease and desist orders, Miller said. And, at any time, the regulatory actions could include a requirement to increase capital levels, he added.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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