Sunday, 15 December 2013

U.S. Commercial Banks Equity to Total Asset Ratio Approaches Pre Lehman Level

So much for shoring up U.S. banks following the catastrophe back in September 2008: On 10 September 2008 (a few weeks before Lehman was selected to fail), U.S. commercial banks equity to total asset ratio stood at 10.62%. According to the most recent figures from the Federal Reserve (4 December 2013) the ratio is now 10.80%. Since peaking at 11.80% back in October of last year, the ratio has dropped ever since, especially since Bernanke first mentioned the possibility of tapering at the tag end of May this year.

Following a through just prior to the Lehman bust of 2.65%, Cash Assets as a percentage of Total Assets for U.S. commercial banks has since steadily surged to the current record high of 18.90%.

The banks are certainly more liquid now than they were pre Lehman. But solidity wise, as measured by the equity to total asset ratio, they are little different now than some five years back. All this means is that banks are perhaps less dependent on the Fed when the next "financial crisis" hits to buy their treasury and mortgage-backed securities as a means to provide liquidity. This is of course due to the Fed having helped them massively already during the last five years, courtesy of the U.S. tax payer and owners of the U.S. dollar.