Kirsten Grind had an interesting piece about local banks in the Puget Sound Business Journal last Friday: Bad loans rising at Washington banks
Bad loans are up dramatically at Washington state banks, surpassing the national average and reaching levels that local banking experts say are unprecedented.
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Washington banks historically have seen lower levels of problem loans than their counterparts across the country. But their heavy construction lending has hit them hard in the wake of the housing slowdown, said Brad Williamson, director of the Division of Banks at the Washington State Department of Financial Institutions, which regulates state banks.
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How bad is it? Since the height of the housing market in the middle of 2006, Washington state’s 97 banks — both publicly traded and private — have seen their problem loans jump from an average of 0.42 percent to 2.71 percent of all assets, according to the most recent data available from the Federal Deposit Insurance Corp. That compares with a national average of 1.89 percent.As a counterweight to bad loans, regional banks are bulking up with more capital, which acts as a buffer to the problem loans. And most publicly traded banks across the Puget Sound region are considered well capitalized.
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But a well-capitalized bank can still fail, and several already have. Both Washington Mutual and IndyMac, of California, were well-capitalized by federal regulatory standards in their last quarterly reports before their historic failures this year.
The basic message seems to be that local banks are in slightly more pain than the national average in terms of bad loans, but that bad loans aren’t a particularly useful predictor of bank failures.
I was surprised to read that local banks actually have a higher percentage of bad loans than the national average. That would seem to fly somewhat in the face of the “Seattle is special” mantra of many local economists.
(Kirsten Grind, Puget Sound Business Journal, 11.14.2008)
Slumlord » Nov 18, 2008 at 1:54 pm
I don’t think problems at local banks go against the “Seattle is special” mantra at all. In fact, I think it is symptomatic. Banks would not have over-lent had they not believed so faithfully the local real-estate market. Our very stability led to complacency and now the fall.
Recovery will depend on our willingness to let go of failed notions of special-ness and find new, productive, direction for the economy. We do have many civic assets and it is time to make better use of them. Here I refer to things like Metro/Sound Transit, local farms, hydropower, and most importantly a culture of innovation.
Jonny » Nov 18, 2008 at 3:06 pm
The fall, yes. But also a bunch of feedback loops. As things come unhinged here in Seattle, it will lead to more unhinging. Leverage can move very large objects, whether financial or otherwise and so de-leveraging is likely to be a very nasty and drawn-out process. “Normalcy” won’t return any time soon for the simple reason that the past 15 years or so have not been normal.
Charles Dean » Nov 18, 2008 at 3:48 pm
I would think that some of these loans are loans to builders who got stuck over the fence on their houses. I am seeing most new construction right now with “leasing now!” signs.
Mike2 » Nov 18, 2008 at 5:54 pm
If local lending peaked near the bubble burst, you’d expect that the loans to be worse than average.
That may be the nail in Seattle’s coffin – the market didn’t take off until lending reached peak credit bubble insanity.
David Losh » Nov 18, 2008 at 6:13 pm
New construction is a game, a ponzi scheme, like many here like to point out.
The bad debt from a single home owner barely makes a dent. A builder bankrupting a thousand units can add per cent ages to a banks balance sheet.
In turn those units selling at a 50% discount can have an effect on pricing in an area. The same was true for driving prices up.
The term “condo alternative” became a common phrase to convince a buyer to pay more for a stand alone house in questionable condition.
Jane » Nov 18, 2008 at 7:11 pm
The effect of banks not able to loan is very bad.
I recently got a pre-approval and went forward with home purchase. After few days the Bank called me and said that they would not be able to give me the loan.
Though the bank said they were sorry, I think we need some kind of bailout from government so that banks would be able to lend and stimulate the economy.
~Jane
jonness » Nov 18, 2008 at 7:43 pm
Jane:
How close to the pre-approval price was the house price?
Buceri » Nov 19, 2008 at 4:57 am
Jane:
Bailouts, stimulus checks (when was the effect of these in the economy?), tax cuts. They only delay the inevitable. You cant’ have an economy based on mainly consumption. You must “make” something; and we don’t make much anymore.
Back on topic. I agree with Tim, as Seattle numbers on all other categories were not as bad as the national average, it is surprising to see banks on the worse side.
Mike2 » Nov 19, 2008 at 7:19 am
Jane: Buy a less expensive house.
Denny Retrograde » Nov 19, 2008 at 8:49 am
(Comment reposted from April – still fresh I think:)
I remember the Puget Sound Business Journal did good reporting of local banks’ exposure back in January. It’s online now:
http://www.bizjournals.com/seattle/stories/2008/01/14/story7.html?t=printable
A bar chart was available in the print edition that showed reported September exposure to construction loans (home, commercial and land development) relative to average gross loans and leases:
10%: National average of all insured commercial banks
22%: First Savings Bank, Renton
31%: Washington First International Bank, Seattle
32%: Sterling Savings Bank, Spokane
34%: Cascade Bank, Everett
36%: Banner Bank, Walla Walla
41%: Horizon Bank, Bellingham
44%: HomeStreet Bank, Seattle
45%: Venture Bank, Lacey
48%: Frontier Bank, Everett
and the winner:
70%: City Bank, Lynnwood