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Great Credit Crunch Issues Remain Five Years After Start

Last week, on Sept. 9, I wrote JPMorgan Upgraded as Banking System Heals, where I showed that the "too big to fail" banks continue to get bigger. As a foursome, JPMorgan, Citigroup, Wells Fargo and Bank of America control about 44% of the $14.41 trillion total assets in the banking system.

Also on Sept. 9, I wrote, Housing Bubble Is Re-inflating and on Wednesday morning, we will get the latest reading on single-family housing starts, which is the key statistic for the homebuilders. Higher home prices, higher mortgage rates and continued tight lending standards for C&D loans for builders and mortgage loans for home buyers could result in a slowdown in the housing market.

On Sept. 10, I wrote, Bank Earnings Rise, but Not Real Estate Lending and on the same day we learned that the "too big to fail" banks were experiencing a significant drop-off in mortgage originations, and the foursome announced significant job cuts in this business line.

A key statistic that has been ignored on Wall Street and in the media is the fact that the FDIC Quarterly Banking Profile for second-quarter 2013 showed a mark-to-market loss of $51.1 billion in fixed-income securities in the "available for sale" category. So far in the third quarter, U.S. Treasury yields have moved even higher, so this mark-to-market is likely growing.

On Sep 11, I wrote, Community Banks With CRE Loan Exposures, where I showed 90 publicly traded banks that were still overexposed to CRE loans. I followed up this story on Sep. 13 in, Umpqua Holdings Buys Sterling Financial; Sterling Financial (STSA - Get Report) was on my list of 90 that I profiled in this post. Sterling had a buy rating, according to ValuEngine.

Last Friday, the FDIC closed First National Bank, Edinburg, Texas, using their bank failure procedures. This bank was not publicly traded, but it illustrates the problems that remain in the banking system. First National had $3.28 billion in assets at the end of the second quarter, with $341 million in C&D loans on its books. Its C&D to risk-based capital ratio was 314.4%, well above the 100% regulatory guideline. Its CRE to risk-based capital was 1,214.1%, well above the 300% regulatory guideline. The CRE loan commitments were 94.3% funded. This failure cost the FDIC Deposit Insurance Fund $637.5 million.

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