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Banks Still Threatened by Toxic Assets

Posted by: Ben Levisohn on June 29, 2009

Investors appear to have put the banking crisis behind them, but they might want to reconsider. The Bank of International Settlement, an international organization of central banks, today announced today in its annual report that toxic assets still threaten the banks and a financial recovery. (Hat Tip: EuroIntelligence via Calculated Risk via the Guardian)

From the BIS report:

At this writing, the ability of those plans to generate a sustained recovery is an open question. The major reasons for doubt, discussed in the final section, are limited progress in addressing the underlying problems of the financial sector and the risks associated with the expansionary fiscal and monetary policies put into place during the period under review.

This probably shouldn’t come as a surprise. As astute investors have noticed, the government’s plans to get toxic assets off the bank’s books have been undermined by the banks themselves, who refuse to sell the securities at distressed prices, and by changes in mark-to-market accounting rules, which have given them the ability to ignore the problem.

And more bank assets may be on the verge of going toxic. Everyone knows that commercial real estate is the next domino to fall, but the worst may not have been reflected in bank earnings, says Douglas Burtnick, investment manager on the Aberdeen Global Financial Services Fund. “We’re still early in the game in knowing how that’s going to play out,” he says.

Reader Comments

Gimme a BREAK

June 30, 2009 12:34 PM

You see, Bernie....had you become a corporation with a dozen more just like you, you wudda gotten TARP, instead of 150 years.


July 6, 2009 12:32 AM

bernie and greenspan, were they the same person? i know they must have played tennis.

R Katen

July 8, 2009 3:20 PM

Mr. Levinsohn has it right. The banks ARE our enemy. They care naught for the economy, refusing to sell "toxic waste" assets at a loss. They can, in their current form, stone wall the entire nation while taking the utmost advantage of regulators, congress, and the public. They need to be regulated, kept from compounding fees, and demanding that commerce be disadvantaged to their institutions' benefit,

Indeed something akin to the old S&L's needs to be re-established for service to the public while the banks are relegated to their non public role.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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