Relieving Some Stress

The U.S. banking system has made some dramatic improvements in its collective health since the 2008-09 financial crises. The improvements are not just to satisfy federal regulators, they should also help relieve any stress in your life relative to the US economy. One fear about our banking system has included a potential spillover liquidity crisis from Europe. Another fear is that the banks are "at it again" and have learned nothing from the 2008-09 debacle. Rest easy, the banks are substantially safer now than they were a few years ago. A Europe banking crisis will not bring our banking system to a halt based on the results of the Federal Reserve Board's latest stress tests.

The Federal Reserve Board conducted stress tests on 19 of the biggest financial institutions and 15 passed, which means they can survive a worst-case scenario of 13% unemployment, a 50% drop in the Dow Jones, and another 21% drop in housing values. Three years ago only 10 passed. The results point to improvement in bank -capitalization.

Another good sign as we look ahead is that Commercial & Industrial Credit for the last 12 months is 5.7% above this time last year. The last quarter came in 10.3% ahead of the year earlier. Expect more lending into the commercial sector of the economy in the coming months as the commercial delinquency rate continues to fall and as the economy shows signs of ongoing expansion.

It would be a good idea to secure a loan before the economy begins to show signs of weakness in the latter half of 2013. Banks are not as likely to take on risk when the economy begins to slip into recession.

In case you were wondering, Citigroup was the biggest name on the "failed" list. It is estimated that they would suffer a $67 billion loss if the worst-case scenario became reality. Strangely enough, that number does not seem overly large considering the magnitude of the 2008 banking bailouts.