Banks are sitting on reserves because they know how many dogshit mortgages they sold and they are aware they will not get bailed out a second time if they don’t have the reserves to cover their loan losses.
As noted in the comments the two metrics to watch are the default/foreclosure rate and the unemployment rate. Seems you could model by bank when they are most likely to need reserves when their variable rate loans reset, pushing borrowers into trouble.
Check that. Variable rate loans aren’t going to reset higher in the current near-zero interest rate regime. Banks are holding reserves indefinitely since they don’t know when interest rates will rise again and they don’t want to get caught flat-footed when they do rise again.
Credit Writedowns asks, ” Are Michigan and Illinois like Greece and Ireland?.”
The probability of default for Michigan reached a high of 800 basis points in early 2009 (approximately a 1 in 12 probability of defaulting over the next year) and was actually well above Greece and Portugal at that time. Greece’s default intensities ramped up in January 2010 with the Greek debt crisis and at the beginning of 2011 were over 1200 basis points (approximately a 1 in 8 probability of default over the next year). Ireland’s default intensity rapidly increased in May 2010 when the market started to realise that Ireland’s initial bailout arrangements were probably insufficient to prevent a default. Ireland’s default probability over the next year is well over 10%. Illinois and Michigan’s default probabilities are about half this level, with probabilities of approximately 5% of defaulting over the next year.
On the news of the death of Osama Bin Laden, the Commandant of the Naval Academy has something to say to the Mids.
“What a Year – When you sit down and think about it, really look at the year, this is a team that should be celebrated. It wasn’t too long ago (middle of February) that Michigan was in the midst of a three game losing streak and not firing on all cylinders. In response, they went on a huge run that saw them advance to the NCAA Finals. There was the Big Chill at the Big House and Michigan’s dismantling of Sparty. Winning the CCHA regular season title. Upsetting the No.1 team in the country in the NCAA semis. It was awesome.”
Snippets of conversations during budget negotiations:
Board Member: Let’s get started. After an absolutely disastrous year, financially, we’re now five months into our fiscal year and you still have not presented us with a budget for this year. Why?
CEO Obama: My staff was waiting until their employment contracts were renewed before we presented a budget.
Board Member: Excuse me?