Financial Answers "IN SIMPLE LANGUAGE"

There’s still not a lot of good news for anyone to report.  We are muddling our way through this financial mess the best that we can.  Or so it seems.  I haven’t met anyone who hasn’t been impacted in some way by what has been going on in the economy.  We need some good news.

 

Our Banks

 

I think we all feel we need some good news for a change but the reality of the situation is that there isn’t a whole lot of good news out there yet.  The latest news on the state of our banks is not very good.  This reminds me of the mess from the Savings and Loan meltdown some years ago.

 

It seems that the list of problem banks in the United States continues to grow.  The last report for the second quarter of this year said we now have 416 banks listed on the problem bank watch list.  This may be a conservative figure for right now because we still haven’t seen the full fury of the commercial real estate mess the United States is in.

 

These 416 problem banks have combined assets of just under $300 billion.  This is up from the first quarter which reported 305 problem banks with assets of approximately $220 billion.

 

Most of the depositors in these problem banks will most likely be covered, in full, by FDIC (Federal Deposit Insurance Corporation) insurance.  This insurance was raised from $100,000 to $250,000 in coverage per account so most people will be okay.

 

The FDIC covers some 8,100 financial institutions and has upwards of $10.4 billion in its insurance coverage fund.  This is a far cry from what is needed if more and more banks go under.

However, the FDIC does have a $500 billion line of credit with the U. S. Government it can draw on which would add to the deficit.

 

Commercial Real Estate

 

As I had briefly mentioned above, the commercial real estate mess that we are in-and is not being mentioned-scares me because of its impact on banks and so many other parts of the economy.  If you look around you see a lot of empty store fronts and office space.  How are the owners and landlords of these premises and buildings paying their commercial loan payments to the banks?

 

We have already seen large shopping malls in trouble and many closing. We have seen the likes of major retailers like Circuit City disappear.  When a major retailer goes out of business can the owner of the leased property continue to make their payments to the bank?  This is a major concern for many of the smaller banks that may have been part of the commercial loan that was made to the owner of the commercial property.

 

Every time another property is vacated, for whatever reason, the owner of the building still has to continue to pay the loan or lose the property to the bank.  The bank doesn’t want to be in the commercial real estate business they just want their loan money back.

 

So you can see how the banks are in trouble and will be in trouble for some time to come.  The United States Government must continue to monitor the banks closely and help in any and every way possible to minimize any more bank failures.

 

The FDIC was created specifically to help protect you and me from losing our life savings in the event of a bank failure.  And this is a good thing.  But when the FDIC reports that more than one

in four U. S. banks was unprofitable between April and June 2009, I don’t know about you but that doesn’t make me feel very comfortable with our banking system.

 

Yes, the “big” banks are making a profit and it was reported that the U.S. Government made a profit of $4 billion from the bailout money repayments from the “big” banks.  That is good news.  However, there are a lot of “small” banks out there they are in trouble or about to get into deeper trouble because of this commercial real estate mess.

 

Stay tuned folks and let’s hope that I am totally wrong about all this bank and commercial real estate mess rolling towards you and me.

 

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