Thursday, February 11, 2010

Triage, not arbitrage, suggested for banks

The Congressional Oversight Panel, the folks meant to oversee the oversights of those doling out the $700 billion bail out funds, has issued a report with two very scary prospects, according to MarketWatch.

The first item is not exactly new news inasmuch as many other people have been sounding the alarm for a while. It has to do with the unfinished business of the finished by not written off losses in commercial real estate. The article says,
According to a report by the Congressional Oversight Panel, about $1.4 trillion in commercial real-estate loans will reach the end of their terms between 2010 and 2014, of which nearly half are now under water (that is, the borrower owes more than the underlying property is currently worth).
For more on this aspect, see Tracy Alloway's post at FT Alphaville.

The second item is the scarier one. Realizing that this will put pressure on many banks, the report proposes that the winners be preselected by regulators, not the market.

The article says,
The oversight panel also urged bank regulators to take a more thorough look at which banks they decide to unwind.

"The [COP] is clear that government cannot and should not keep every bank afloat. But neither should it turn a blind eye to the dangers of unnecessary bank failures and their impact on communities," the report said.

The COP members said that not all banks should be treated the same way when it comes to recognizing losses.

Guambat is somehow not very comforted in expecting regulators to do a better job of selected the weak from among the strong banks. It seems to Guambat that only the week ones (except the smart lads at Goldies) have, so far, benefited from government largess, and this bodes poorly for the choices yet to come.

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