Tuesday, January 13, 2009

Why More TARP Money is Needed

The TARP program has been extremely controversial. However, regardless of which side of the controversy you some down on, consider the following charts before you make your final decision. All of these charts are from the FDIC's recent Quarterly Banking Profile:



The percent of FDIC insured institutions that were unprofitable was at its highest level in the third quarter.



The biggest issue for banks is the loan loss provisions -- meaning the amount of money banks set aside for losses. These numbers are large -- and they are increasing:

The industry reported year-over-year growth in net charge-offs for the seventh consecutive quarter. Net charge-offs totaled $27.9 billion in the quarter, an increase of $17.0 billion (156.4 percent) from a year earlier. Two-thirds of the increase in charge-offs consisted of loans secured by real estate. Charge-offs of closed-end first and second lien mortgage loans were $4.6 billion (423 percent) higher than in the third quarter of 2007, while charged-off real estate construction and development (C&D) loans were up by $3.9 billion (744 percent). Charge-offs of home equity lines of credit were $2.1 billion (306 percent) higher. Charge-offs of loans to commercial and industrial (C&I) borrowers increased by $2.3 billion (139 percent), credit card loan charge-offs rose by $1.5 billion (37.4 percent), and charge-offs of other loans to individuals were $1.7 billion (76.4 percent) higher. The quarterly net charge-off rate in the third quarter was 1.42 percent, up from 1.32 percent in the second quarter and 0.57 percent in the third quarter of 2007. This is the highest quarterly net charge-off rate for the industry since 1991. The failure of Washington Mutual on September 25 meant that a significant amount of charge-off activity was not reflected in the reported industry totals for the quarter.
In addition,
The amount of troubled loans is still very high. And finally: