Thursday, March 5, 2009

IRA's Bank Stress Tests

Chris Whalen (via The Big Picture) details his firm's (Institutional Risk Analytics) latest bank stress test results:

Notice the way in which the banking industry has shifted from a skew in favor of “A+” rated bank units at the start of 2006 – those with stress levels below the 1995 benchmark in the Stress Index – to a situation today where the number of “A+” rated banks has been cut in half and over 2,000 bank units now are rated “F”.

Being rated “D” or “F” does not mean that the institution will fail, but it does mean that the bank’ current performance in Q4 2008 was far above the industry’s elevated stress levels and thus the bank get’s a poor grade for this period. Indeed, in many cases institutions with relatively high levels of stress could be excellent value for investors.

As of the fourth quarter, IRA had JP Morgan, Wells Fargo, and Bank of America all at an A rating, while Citi was a resounding F. I wonder what kind of rating Bank of America has these days post-Merril acquisition...

Source: Institutional Risk Analytics


  1. Thanks for this - made it a headline

  2. Hi Jake. I'm a long time fan of your blog (and a daily reader). I have several questions... I know you've posted this sort of thing in the past ... How many tax dollars had the Fed actually spent (not promised) excluding short term loans under the entire alphabet of programs? Then how much more will be spent in each year under the Fisical stimulus?

    Finally what is the total of the alphabet spending and the Fiscal spending divided by the number of mortgages? I have this feeling that instead of padding bank balance sheets, this money would be better spent going directly to tax payers under the provision that they refinance or buy a new home. Suddenly housing prices would firm, people would be working, and the real economy would be stimulated. Even the "bad paper" and derivatives on the books of banks (and AIG) would get corrected through refinanceing.

    The current spending will only get paid back from taxes. Where if the money was given to taxpayers instead of banks some sort of very low terms could be set reducing the tax burden and resolving some of the moral hazard.

    Am I missing something? Either way I'd like to see the numbers.