ECONOMIC OUTLOOK

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IS YOUR BANK FAILING?

Although Washington continues to see economic recovery waiting for us at the end of each season, many of thereal indications of our nation's poor fiscal health are being ignored. Consider, if you will, the implications in the following material, adapted from the excellent newsletter, Personal Finance ....

More than a third of the nation's 50 largest savings and loan associations are "failing" by government standards, according to a computer-generated report commissioned by Personal Finance.

A companion survey of the top 50 commercial banks reveals that more than half do not meet the minimum equity capital requirements set by the federal banking agencies. Normally, a bank's reserves of equity capital provide a "safety cushion" for depositors in case the bank suffers unforeseen losses.

These findings are based on the latest financial statements (December 31, 1981) submitted to the federal banking agencies by more than 18,000 banks and S&Ls nationwide. Large commercial banks report quarterly to the Federal Reserve; S&Ls, semiannually to the Federal Home Loan Bank Board.

The government agencies that regulate the banking industry compile lists of "problem" banks and S&Ls, but the names of the institutions are kept secret. PF believes that the American public has a right to know how banks and thrift institutions are faring in these days of high interest rates, depressed real estate markets, widespread bankruptcies and international financial turmoil.

An enterprising Massachusetts-based team of computer software analysts, called Veribanc, has discovered a way to pinpoint troubled banks and S&Ls.

Periodically, the federal banking authorities issue a series of little-known computer tapes. These tapes contain detailed financial statements submitted by every federally supervised bank and S&L in the nation.

The banking regulators have stated publicly that they expect banks and S&Ls to maintain certain minimum financial ratios. By analyzing the raw data on the tapes, Veribanc states that it can determine whether an institution is meeting the government standards.

PF asked Veribanc to prepare a report on the nation's 50 largest commercial banks and S&Ls, which account for close to half of all U.S. bank deposits. We have condensed the Veribanc study into the accompanying tables.

THREE CATEGORIES

Under the Veribanc system, each bank or S&L falls into one of three categories: green, yellow or red.

To qualify for a "green" rating, a bank's equity or an S&L's net worth must equal at least 5% of the institution's total assets. The Federal Reserve, the FDIC and the Comptroller of the Currency have established this standard for commercial banks. The FDIC will require a specific plan to remedy the capital deficiency promptly for any supervised bank which falls below this 5% "minimum acceptable level."