Troubled Assets Still Threat to Banks

August 11th, 2009 by narcompany

Almost a year after the government launched a major effort to address troubled assets, an overwhelming portion remain on bank balance sheets and at the root of the financial crisis.  These troubled assets continue to pose a danger to the financial system and the institutions that hold them.  Smaller banks stand to suffer the most significant losses should the economy take a turn for the worse.

The Public Private Investment Program is the Treasury’s main program for removing troubled assets from banks’ balance sheets. At present, this program will address only troubled mortgage securities and not whole loans, which is what small banks’ troubled assets are generally comprised of. If losses are severe enough, some institutions run the risk of being pushed out of business.

Although accounting standards changes have allowed banks a larger scope in valuing assets, there is still an underlying problem. The hard-to-value, troubled assets remain on the same balance sheets since last October. A recent report on the TARP Program aims to to place a number on the value of these assets, and did so for at least 19 large banks that underwent government stress tests earlier this year. Those large banks included Goldman Sachs, JP Morgan Chase, Citibank, and Bank of America. The amount of troubled assets on those banks’ balance sheets is up 14.3% from the end of 2008.

A congressional Oversight Panel monitoring the government bailout efforts expects that these large institutions could see major losses attributed to$132.9 billion in annualized loan losses, $264.6 billion in past-due loans, and $8.9 trillion in credit default sub-investment grade exposure.

The panel was due to have their report out today and it used publicly available financial data to make stated calculations. -(Washington) Dow Jones Newswires

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