Early Look at Q3 2009 Preliminary Bank Stress Test Ratings Show Improvement

As of today, our automated tool to gather FDIC bank call reports and generate Stress Index ratings has gathered data on some 5,063 institutions. Users of the professional version of the IRA Bank Monitor can see the ratings on a list we have built on the Bank Monitor home page that is sorted by assets. The largest institution CALL reports in so far start with the Ally Bank unit of GMAC, followed by a unit of Toronto Dominion Bank (NYSE:TD).

Perhaps most important is the fact that the overall level of observed stress in the industry is not rising significantly. You can see the public widget we have built that shows the preliminary ratings for the current quarter and the final ratings for the past quarter by clicking here.  One of these days, when Barry actually joins our affiliate program, we are going to build him some little toys using our web technology for visitors to The Big Picture theme park.

The current bank stress index for the smaller banks in the US banking industry is 6.45 vs. 1 for the benchmark year of 1995. Being more than half an order of magnitude above the mean for banking stress is not good. But given that the preliminary rating in Q2 2009 was 6.7, this when we had about 7,000 bank CALL reports available, the overall message from the Stress Index is that levels of pain in the banking industry are about where they were in Q2 2009. You can read our public comment about the Q2 2009 ratings in the Institutional Risk Analyst.

While it is possible that the overall level of industry stress could rise or fall as we see the rest of the FDIC bank units report for Q3 in the next three weeks, we think that this preliminary result confirms the general trend in the industry toward moderating loss rate increases. Since only the 19 Stress Text banks were really under pressure to window dress Q3 results for compliance purposes with the Fed’s SCAP stress tests, the inference we draw is that the rate of change in terms of stress throughout the industry was likewise more moderate in Q3.

Chris