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If 'Too Big to Fail' Banks Fail, We'd Be Greece (Correct)

Stocks in this article: BACCJPMWFC

The FDIC Quarterly Banking Profile for 2Q 2013 showed a mark-to-market loss of $51.1 billion in fixed-income securities in the "available-for-sale" category. This mark-to-market loss is likely growing.

Other Real Estate Owned in the banking system totals $32.6 billion. The "too big to fail" banks were the major mortgage lenders so they likely have the lion's share of this exposure.

The deposit insurance fund (DIF) totaled $37.9 billion at the end of the 2013 second quarter. Even if insured deposits do not grow and remains around $6 trillion in September 2020, the DIF would need to be funded at about $81 billion. The "too big to fail" banks will have the largest increases in DIF assessments.

Noncurrent loans still total $239.3 billion. My bet is that the 'too big to fail" banks account for 40% to 50% of this amount.

Since the end of 2007 notional amount of derivatives in the banking system are up 42.4% to $236.5 trillion and most of this exposure is controlled by the four "too big to fail" banks. There are likely more time bombs ticking in this category.

I am not an expert on FASB accounting rules, but I understand that new rules will require the bigger banks to increase capital.

Two senators are trying to work together to bring us a "21st Century Glass-Steagall Act." They are Elizabeth Warren, D-Mass., and John McCain, R-Ariz. They agree that traditional banking such as mortgage lending and checking accounts be separated from the speculative activities in investment banking and derivatives trading. I agree with this initiative.

Meanwhile, Main Street USA is beginning to have similar issues as Main Street, Greece: lower family incomes, more part-time jobs, tight lending standards and increasing costs for insurance of all types, homeowners, life, flood and health care.



At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier is the chief market strategist at AlphaPlus Analytics in addition to ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com
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