I posted New Banks Needed #1 on Huffington Post also, and was disputed by someone who was in denial about the status of the industry. He said, quote, “There are over 10,000 financial institutions in the United States today, the vast majority with ample capital, and a huge desire, to lend.”
Here is some analysis to put that statement to the test.
The gist of what I am saying is this and is really not controversial.
- Banks have embedded losses on their balance sheets
- These imbedded losses impact profitability and capital
- Because risks in the economy are large, banks are exceedingly careful about lending.
- On an individual bank level, this is appropriate.
- In aggregate, this reduces growth or recovery potential
- This is in line with the “Zombie Bank” discussions that were all over the place during the depth of the financial crisis, which predicted just what we have going on today.
- The Fed policy of low rates and other regulators complicity in “extend and pretend” does not solve this dilemma. It simply prevents the clearing of the market for financial assets and the development of new robust financial institutions that are capable of taking on risk.
- New banks with new capital are needed. They would not be encumbered by imbedded bad assets or dependent on a super low rate environment.
New banks would also provide the opportunity to shed the predatory financial model that imperils our future. The ability of bankers to be in denial about the state of affairs and to argue for the status quo is not a reason to believe them. That’s it.