What fills you with less confidence: seeing more money at risk of bad loans or seeing more banks at risk of bad loans? Basically, is it worse to have institutions fail or money be lost.
That’s essentially the situation this week. 31 new banks were added to the FDIC’s “Problem List” bringing the total to 806. However, total assests of those banks was down from $403 billion to $379 billion. (Not to freak you out, but this year alone 149 banks have gone under. Oh right, that won’t freak you out if you remember last year’s numbers.)
So back to the issue at hand, is this a better situation or a worse one? On the one hand, less assets at risk provides for more aggressive lending. But more banks added to the Watch List means more neighborhood institutions are going to be careful about their lending practices.
If you ask me, I’d have more capital at risk but less banks. Banks provide the real potential for growth in the economy and there need to be as many sources of capital out there as possible. If the majority of risky assets were concentrated in fewer banks, I think it would prove much better for the economy.
People are tossing around words like “cautiously optimistic” and “recovering from the financial crisis” but their mostly meaningless since they’re used so often. So let’s hear from you guys. Let me know if you think I’ve finally lost my mind and need a long vacation. Or just let me know what your thoughts are on the lending situation.