Bank Solvency Tests
We no longer need to hold our breath, the bank stress test rating the top 19 banks came out today. While heralded as all 19 passing, 10 of the 19 need to raise significant capital over the next few months. Moreover, there are no shiny rainbows to this report. Considerable new losses can occur.
In a worse case scenario, if unemployment continues to increase coupled with the loss of equity in housing markets, total loan losses could hit 9.1% of total outstanding loans. To put this in perspective this is a larger loss rate than banks had during the worst of the Great Depression in the 1931-32 time frame.
Unemployment does seem to be key here. So the question then becomes whether President Obama’s plan will help the unemployment rate. His own verbiage has changed from one of creating new jobs to keeping jobs to keeping govenment jobs. Perhaps even he sees that the job creation isn’t happening as he gave American’s hope for. Even Democrats are talking in hushed tones of a ‘jobless economic recovery’ that if left unmanaged could slaughter them in the 2010 elections.