Bad Loans Remain Well
Above Precrisis Levels
Seven years after the onset of the financial crisis, the banking industry is still sitting on a significant amount of bad loans. FDIC data indicates that nonperforming assets totaled $162 billion as of June 30, which is down 63 percent from mid-2010 but nearly triple the $56 billion reported in mid-2006. This can be attributed to banks' reluctance to offload a number of credits in bulk sales, loss-share agreements forcing banks to keep bad loans on their books, low interest rates, and a lack of better reinvestment options. Observers say this could pose problems if the industry faces another economic downturn. Clark Street Capital CEO Jon Winick says, "The banking system and the economy would have recovered faster if there had been more emphasis on disposing bad assets rather than managing them. It has distracted a lot of organizations." However, Rusty Cloutier, president and CEO of the $1.9 billion-asset MidSouth Bancorp in Lafayette, La., says, "Being more of a community bank, we try to work with customers in good times and in bad times. It is a good tool to have in your arsenal." But Winick notes that banks continue to incur costs associated with carrying bad assets, and reducing them could help banks get out from under regulatory orders.
From "Bad Loans Remain Well Above Precrisis Levels"
American Banker (09/24/15) Stewart, Jackie
Seven years after the onset of the financial crisis, the banking industry is still sitting on a significant amount of bad loans. FDIC data indicates that nonperforming assets totaled $162 billion as of June 30, which is down 63 percent from mid-2010 but nearly triple the $56 billion reported in mid-2006. This can be attributed to banks' reluctance to offload a number of credits in bulk sales, loss-share agreements forcing banks to keep bad loans on their books, low interest rates, and a lack of better reinvestment options. Observers say this could pose problems if the industry faces another economic downturn. Clark Street Capital CEO Jon Winick says, "The banking system and the economy would have recovered faster if there had been more emphasis on disposing bad assets rather than managing them. It has distracted a lot of organizations." However, Rusty Cloutier, president and CEO of the $1.9 billion-asset MidSouth Bancorp in Lafayette, La., says, "Being more of a community bank, we try to work with customers in good times and in bad times. It is a good tool to have in your arsenal." But Winick notes that banks continue to incur costs associated with carrying bad assets, and reducing them could help banks get out from under regulatory orders.
From "Bad Loans Remain Well Above Precrisis Levels"
American Banker (09/24/15) Stewart, Jackie
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