Bernanke: Bankers, Heal Yourselves

Fed chief urges self-help as a way to solve the housing slump.


Ben Bernanke made an attempt to prop up falling home prices yesterday when he told those community bankers in Orlando to, basically, eat the negative home equity of their mortgage borrowers. But Ed Yardeni notes that the Federal Deposit Insurance Corp.'s Quarterly Banking Profile shows banks to already be under a bit of stress. His findings:

1) Record high loan-loss provisions, record losses in trading activities, and goodwill impairment expenses combined to dramatically reduce earnings at a number of FDIC-insured institutions in Q4-2007. Net income of $5.8 billion was the lowest amount reported since Q4-1991.

2) The average return on assets (ROA) was 0.18%, down from 1.20% a year earlier. This is the lowest since Q4-1990, when it was a negative 0.19%.

3) Insured institutions set aside a record $31.3 billion in provisions for loan losses. Trading losses totaled $10.6 billion, marking the first time that the industry has posted a quarterly net trading loss.

4) Total noncurrent loans—loans 90 days or more past due or in nonaccrual status—rose by $26.9 billion (32.5%) in the last three months of 2007. This is the largest percentage increase in a single quarter in the 24 years for which noncurrent loan data are available.

5) The percentage of residential mortgage loans that were noncurrent rose from 1.57% to 2.06% during the quarter and is now at the highest level in the 17 years that noncurrent mortgage data have been reported.

My take: Expect the momentum for a big government bailout to grow. I blogged on this yesterday, and the New York Times figured it out this morning with this story: "Bush and Fed Step Toward a Mortgage Rescue."

Bernanke, Ben
subprime mortgages

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