Wikinvest Wire

Bad loans still on the books

Tuesday, August 11, 2009

The Congressional Oversight Panel for the Troubled Assets Relief Program reported their latest findings earlier today. Here are the highlights:

For smaller banks, those not among the 19 stress tested bank holding companies, troubled assets pose special challenges that have not been acknowledged. These banks' troubled assets are generally whole loans, which are not currently being addressed by Treasury's PPIP program. These banks also hold greater concentrations of commercial real estate loans, which pose a threat of high defaults. These banks also have more difficulty accessing the capital markets, which heighten concerns about their stability.

Treasury and relevant government agencies should move toward greater disclosure of the terms and volume of troubled assets on banks' balance sheets. Because banks typically disclose few details about the toxic assets on their books, it is difficult to gauge the magnitude of the risk that these assets pose to the financial system. Greater transparency would allow for better judgments about the scale of the problem and the adequacy of the government's response.

If the economy worsens beyond the levels considered in the recent stress tests, these tests should be repeated. Stress tests have the potential to gauge the impact of troubled assets on bank capitalization and to measure the risk that troubled assets could once again trigger instability. The Panel recommends that stress tests be adapted to consider the challenges facing smaller banks, including the adequacy of these banks' capital.
If you have a few hours to kill, the entire 145-page report($) is available online.

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