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Bailout Oversight Panel: Some Banks Still Vulnerable to Collapse |
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Nearly a year after the $700 billion bailout of the nation’s financial system began, banks—especially regional and smaller banks—are still threatened by the billions of dollars in bad loans on their balance sheets. More could fail if the economy worsens, according to a new report from the Congressional Oversight Panel (COP), which oversees the spending of the bailout funds.
“The Continued Risk of Troubled Assets,” released today, warns that if unemployment rises sharply or the commercial real estate market collapses, the banking system could again nosedive into a crisis.
In the report, the panel says:
The financial system [remains] vulnerable to the crisis conditions that [the bailout] was meant to fix.
The report says many of the Obama administration’s financial stability efforts are working—including infusions of new capital for banks, heightened scrutiny of capital ratios and “stress-testing” of large financial firms.
But the way the Troubled Asset Relief Program (TARP) funds have been spent has placed some banks in danger, COP says. TARP was originally proposed as a plan to buy bad mortgage-backed loans from ailing banks. But by the time the program was signed into law in October 2008, the Treasury Department had decided to go in another direction and use the money to provide banks with a capital buffer and to build reserves. That left many of the bad loans on the books.
According to the COP:
These steps have…allowed the banks to take significant losses while building reserves. Nonetheless, financial stability remains at risk if the underlying problem of toxic assets remains unresolved.
Small banks are especially vulnerable, the report says. Most of their bad loans are not covered by the Treasury Department’s main program for buying up bad assets. In addition, the report says, regional and smaller banks hold greater numbers of commercial real estate loans, “which pose a potential threat of high defaults.”
You can read the full report here.
The COP, which includes Damon Silvers, AFL-CIO associate general counsel, is charged with reporting on the Treasury Department’s effort to stabilize our nation’s financial system and make recommendations to improve it.
The COP has issued monthly reports since January, finding among other things that the Treasury Department has not produced a plan for restoring lending to consumers, questioned the overall plan to rescue the financial industry and raised concerns about the administration’s plans to stem foreclosures.
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I would like to know why these bank aren’t making the homes more affordable and getting the people help that they need to modifiy their home loan mortgages. Situations happen that aren’t necessary the persons fault but others that cause chaos in one’s life. Also, why isn’t the TARP Committee making it mandatory to help the people and correct the problems not just have so called bad loans on a book. If there wasn’t so much corruption in all of the parties involve may be for once the people in our country that work hard and try to make ends meet will over come and succeed. This is wasting of money, wasting of time. People’s lives and family are at high risk. It should have been directive not objective. It is so cruelsome to watch and hear these stories from all sources and no one wants to help the people or admit to the wrong.