The federal government’s Shared National Credit (SNC) Review for this year found $53 billion in losses on large loans held by U.S. bank organizations, foreign bank organizations, and nonbanks such as securitization pools, hedge funds, insurance companies, and pension funds. The definition of a large loan is one exceeding $20 million.
The SNC said the $53 billion “exceeded the combined loss of the previous eight SNC reviews and nearly tripled the previous high in 2002.” The study was first done in 1977.
Total credit commitments across the institutions reviewed was $2.9 trillion. The study looked at 8,955 credits extended to about 5,900 borrowers.
The results of the study are certainly an indication that many financial firms will have to raise more capital and that certain hedge funds and LBO operations may be in much deeper troubled that had previously been thought.
As Congress, the Treasury, and the Fed debate the issue of whether they have enough money in the TARP fund now and whether that fund should be maintained well into next year, this data should answer the question. The SNC numbers are not likely to get better next year as over-leveraged loans or loans made against assets which continue to deteriorate grow. The credit crunch which is supposed to be easing as each day passes may continue to be a problems among financial institutions for several quarters to come.
There is a great deal of optimism that the government will be able to withdraw its support of the broad US banking system. It turns out that the process of that retreat should not even be in its earliest stages.
Douglas A. McIntyre
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