BiggerPockets

With the downgrades by Moody and others today, is the worst over? Any concern about a run on the bank? Anyone currently trying to obtain a BofA loan at present? Curious to see if there are changes coming to further tighten the funds.
The comment that worried me was that BofA is NOT too big to fail. I can't imagine what the repercussions would follow that possibility. Time will tell. Rich

heh Ali- I fly out of your city early tomorrow! I hope the banks survive and grow,but who knows. Rich

Looking at Lehman, right before the collapse- Fuld fired in Joe Gregory and Erin Callan a top exec named Joe that he was very close to, and an incompetent woman.

A couple weeks back, Brian Moynihan fired in Joe Price and Sallie Krawcheck, a top exec named Joe that he was very close to, and an incompetent woman.

If B of A is the next Lehman... the economy is in for a world of hurt.

That said... I had a closing with a B of A loan on 9/14 and while it was no walk in the park, it wasn't the worst B of A closing ever. Feet on the street are still OK for the moment.

As far as "runs on banks," that is now relegate to reruns of "It's a Wonderful Life." Thank you George Bailey.

All banks will face greater borrowing costs on their non-deposit liabilities but as long as you read FDIC on the window or door as you walk in to the bank, you have nothing to worry about as long as the FDIC remains solvent.

Hey, wait a minute. I've got to run to the bank. ( jk )

James, I have no exact knowledge of the FDIC's fund status but IMHO, if the FDIC were required to keep their books like a publicly traded company, they would have declared insolvency the first time ... probably back in the late 80s or early 90s. And probably made a second declaration in 2008. We have had almost 400 bank failures in the last 4 years ... including many Billion dollar banks.

One thing DC keeps as a major cover up and secret is the true stability of the financial institutes. Look at 2008 till now and see how many banks have gone down.....

so far in 2011, 71 banks have failed (FDIC.GOV)..our financial market still is a mess, FDIC has over 870+ bank on their watch list, when banks leverage ratio drops and their Texas ratio goes high, they get on the list and given a chance to clean up their act and raise more capital, if they cant they get more notice and if nothing out of it, the Black Friday (only day that FDIC shuts down banks) comes knocking on their door.

Our banks are still bleeding hard.

David, for larger publicly-traded companies, not just banks, the shareholders need to structure the compensation of the management for long-term success of the company. It has become easy for the CEO of a large company to make moves that boost the share price in the short term but have longer-term detrimental consequences.

IMHO, the boards of these companies and especially the compensation committees need to structure the contracts of the CEO and other top brass with long-term compensation (salary and bonuses). Any easy way of doing that is with restricted stock which the officer cannot sell under any circumstances (nor encumber for 10 years. Any detrimental moves the CEO makes will affect his/her long term wealth the same as it affects the wealth of the long term stockholder.

Smaller, non-traded companies can more easily police there own management.

Too big to fail for now - I have no doubt they will roll off the bad assets into Countrywide or some other created RTC type org.

I have heard that the too big to fail banks may be unraveled over time as the MBS', CDO's, etc are all unraveled and "desecuritized". We shall see if the Feds have that kind of long term staying power in their plans.

Anyway, there's a lot of optty out there for those with the cash. Though I do believe if you are putting it all in RE do so only in assets that will make it through the next couple major crash/dips - if they ever materialize.

@Rich Weese your original post was on 9/21/11. BofA was "well-capitalized" for regulatory purposes, the highest classification, when you posted. True also on their 8/4/11 filing, their 11/3/11 filing (they made money on 3 and 9 month basis) and their 2/23/12 annual report filing (finished fiscal year with $1.44 Billion in net income).

Sorry, James, your posts aren't consistent with facts.

December 2009. BofA repaid $45 billion TARP investment it got from the government during the financial crisis. google it or (better) see the Executive Summary "TARP Repayment" in their 2/26/10 SEC filing, 10-K Annual Report, page 18. Many of the banks paid back their loans (see my BP post on Feb 11, 2012 regarding Wells Fargo $25 billion payback completed 12/23/09) a few years ago.

Regarding "And, do you know what happens to a bank when the FDIC reaps them? The are folded into one of the big 3, which ever one is declared for that region." Complete hogwash. This exercise will take you 15 seconds. Just go to the FDIC failed bank list and see the Acquiring Institution. It's easiest to click on the Acquiring Institution heading, then again to get sorting A-Z. Bank of America? not there. JP Morgan? Once. (WAMU. Remeber them? 9/25/2008 at the height of the banking crisis.) Citigroup? not there. Wells Fargo (and/or Wachovia)? not there.

Countrywide exposure is non-trivial. This $94 billion in revenue company has a pretty big exposure to legacy Countrywide (and to a lesser extent Merrill Lynch) that remains unresolved. Their "...total unresolved repurchase claims from all sources totaled approximately $14.3 billion at December 31, 2011" per their last 10-K, page 5. They say they made various representations and warranties on mortgage performance, and breaches in these warrantees "may result in a requirement that we repurchase mortgage loans, or indemnify or provide other remedies to counterparties (collectively, repurchases)." That $14.3 billion is less than their net income, ex-goodwill impairment, in the last two years (2010, 2011) per Table 1 on page 27 of the 10-K.

So, Rich, IMO the time to worry was October 2008.