It’s a Lot Worse Than It Looks

Let’s start with the overall stress level of the US banking industry in the fourth quarter of 2008, according to Institutional Risk Analytics. Get out your mountaineering gear:

The upshot of the data is that banking is as bad as it has been since at least 1990.

“We continue to project an average loss rate experience for the industry of 2x 1990 levels, which equates to average charge-offs near 4%,” IRA writes. “That said, there remains a growing disparity between the large institutions that are the outliers of the group in terms of Stress Index and Economic Capital measures and the thousands of smaller institutions in the industry that display far lower levels of stress and higher levels of tier-one capital, etc. than their large bank peers.”

So big banks are in awful shape; smaller banks in less awful shape. This has a bearing on the FDIC’s blanket “special assessment” of deposit insurance premiums of 20 basis points announced last week. Community bankers are hopping mad about the assessment, and clearly if smaller banks are in better fiscal shape than larger banks (which have in recent years enjoyed all sorts of regulatory benefits, such as lower Tier 1 capital requirements), you have to ask why should they shoulder the burden of the Citigroups and Bank of Americas of the world?

Someone should start a picket outside of Sheila Bair’s office.