NEW YORK (TheStreet) -- The Federal Deposit Insurance Corporation's Quarterly Banking Profile, or QBP, has a wealth of data and information covering the banking system and the types of assets where stress still exists.On Tuesday, I wrote
Notional Amount of Derivatives have increased by $58.9 trillion since the end of 2007 to $225.0 trillion. This rise of 35.4% during a period when risk was supposed to be deleveraging remains a red flag and will be a source of additional time bombs for the global economy. De-leveraging and financial reform is supposed to provide more transparency, but I have not seen any sense that derivatives are under increased scrutiny. This category of risk peaked at $251.3 trillion in the second quarterly of 2011.
The seven largest participants in the Derivatives markets initiated $204.4 trillion (98%), and this includes three of four "too big to fail" banks: J.P. Morgan Chase ( JPM), Bank of America ( BAC) and Citigroup ( C). According to the report: Reserve for Losses increased by $74.1 billion, or 72.4%, to $176.5 billion since the Great Credit Crunch began at the end of 2007 -- showing that banks expect additional bad loans to surface over the next several quarters at least. Reserves for losses peaked at $263.1 billion in the first quarter or 2010 and the decline to $176.5 accounted for a significant contribution to earnings. Despite the decline, reserves remain elevated. Noncurrent Loans increased by $182.2 billion since the end of 2007, up a staggering 165.6%, which means that the banking system is still saddled by $292.2 billion of bad loans. Noncurrent loans peaked at an even higher $405.4 billion, also in the first quarter 2010. Noncurrent loans are thus 27.9% off the peak, but still up 165.6% since the beginning of the "Great Credit Crunch." The FDIC Reserve Coverage Ratio is shown below. Profiling the "Too Big to Fail" Banks: Bank of America: On Jan. 11, 2008, Bank of America announced it would buy Countrywide Financial for $4.1 billion in stock, in a rescue of the largest mortgage lender. This deal was a take-under at a 7.5% discount to where Countywide was trading the prior day. Delinquencies and loans pending foreclosure were rising. On July 24, 2012 a Boston Globe article showed this acquisition could cost the bank significantly more due to what seems to be an endless flow of legal claims associated with Countrywide's subprime mortgage business. JPMorgan Chase: On Sept. 26, 2008, JPM paid $1.9 billion for Washington Mutual in a deal brokered by U.S. regulators, which was the largest bank failure in history at that time. It appears reasonable to assume that the $176 billion in home loans picked up by JPM still includes additional potential problem loans. JPM built up the largest portion of the notional amount of derivatives, and we know back in mid-May that the bank made a bad bet on derivatives in the "London Whale" situation. We still do not know the bottom-line loss in that bad trade. Citigroup: faced a shareholder law suit back in November 2007, which was an early warning for the "Great Credit Crunch." The suit contended that the bank misled shareholders about the bank's exposures to subprime mortgage debt. Later that year the bank wrote down Collateralized Mortgage Obligations tied to subprime mortgages and in their fourth-quarter 2007 earnings report took at $9.83 billion loss. This law suit was settled in late August this year for $590 million. Sounds like peanuts, but can there be more problems ahead? Wells Fargo ( WFC): In early October 2008, federal anti-trust regulators approved Wells Fargo's acquisition of Wachovia. You remember this one? Wachovia spurned a $2.2 billion government-sponsored sale to Citigroup, by accepting a superior offer from Wells Fargo. What I have always wondered about is what happened to the bad loan exposures after this merger was completed. Wells Fargo had the largest industry exposure to home equity loans where the primary mortgage is not with Wells Fargo. Wachovia had the largest exposure to the riskiest type of residential mortgage loans called Option-ARMs. I am not sure whether or not these exposures are still problematic. In summary, the bailout of Washington Mutual, Countrywide and Wachovia made the "too big to fail" money center banks even bigger. Exposures have been whittled down beginning in 2010, but still remain quite high by historical standards as shown in the FDIC Quarterly Banking Profile for the second quarter of 2012. This means that balance-sheet time bombs continue to tick in the U.S. banking system. This article was written by an independent contributor, separate from TheStreet's regular news coverage.