How Healthy Are the Big Banks

How Healthy Are the Big Banks Jill Schlesinger: Since the height of the financial crisis in the fall of 2008, the government has injected nearly $200 billion into more than 500 large and small banks around the country. Eager to free themselves from government oversight and involvement, many institutions are clamoring to repay TARP funds. MoneyWatch blogger and financial and economic analyst John Keefe joins us to discuss the implications of the repayment process. Welcome John. John Keefe: Hello Jill. Jill Schlesinger: So, we learned that there are some banks that are ready to give us back $68 billion. What is this say about those not on the original list? John Keefe: Well, first about the banks that were able to repay those initial 10, those are the banks that were the biggest and the strongest to begin with. They probably didn’t need the TARP funds but the Treasury and the Fed felt a need to come in and control the entire system. So, their repayment is probably symbolic if anything else. Jill Schlesinger: When you look forward and we say out of those big banks that are not on the original list of repayers, are there any names that pop-out of concern? John Keefe: Well, the one that is a troublesome, the one that’s the most obvious is Citibank. Of course, one of the big banks was not able to repay. They have been one institution that’s most notable for converting the preferred shares into common equity and they also had a personal visit from Sheila Bair who is the chairman of the FDIC who came and spoke to the board of directors and tried to call everybody down. Jill Schlesinger: We don’t like visits from the principal. So, not a good sign. John Keefe: No, not a good sign. Jill Schlesinger: This week, we found out Elizabeth Warren, she is the TARP oversight point person for the congress. She said, “We may need to run stress tests again. We may need to do another round.” What's your opinion about that? John Keefe: Well, I think that’s fine. The market’s keeping in mind their doing stress tests all the time. The quarterly earnings come out or they rate the agencies, they're doing the same kind of work but the assumptions that were behind the stress tests, there were a couple of different things. One was unemployment rate. We've already surpassed that in 2009. Since the stress test began, it's been revealed that they are going to be a lot of potential defaults in commercial real estate and office buildings and shopping malls in 2012 through 2013 timeframe. So, I think more stress tests were entire appropriate. Jill Schlesinger: So how long do you think it will take for us to get out of this stress test period, this period where we’re worried about our financial institutions? John Keefe: Well, our financial crises are slowly developed and they're slow to heal. So, it could be three or four years before we’re really out of it. Jill Schlesinger: John, thank you so much for joining us. John Keefe: Thank you. Jill Schlesinger: For more in John Keefe’s blog, go to moneywatch.com.