Banks Still Looking for Bottom

BY MATTHEW G. LAMOREAUX

The outlook was somber in Washington on Wednesday at the annual AICPA National Conference on Banks & Savings Institutions, where more than 1,000 CPAs gathered to discuss accounting issues in the ailing banking industry.

 

“The S&L crisis was a Sunday school picnic compared to what we’re going through today,” said Bert Ely, a Washington, D.C.-based banking consultant, at a packed opening session. The concern, said Ely, is that this recession will be longer and deeper than any recession since World War II.

 

Despite trouble in the industry, evidenced by 19 bank failures so far this year, fundamentals for the majority of the sector are strong, according to Ely. The 19 failed banks shared key characteristics of weak deposits and significant construction lending outside of their home markets, he said.

 

Although many proposals are circulating on Capitol Hill that would consolidate regulatory agencies in the sector, Ely downplayed the possibility that there will be such broad restructuring under the Obama administration. He did, however, predict that the new president will likely push legislation to allow bankruptcy court judges to modify mortgages and also to have a 90-day moratorium on foreclosures.

 

“Housing prices have not yet bottomed,” said Ely. “This is not just an issue for the U.S. financial system or for the U.S. economy but for the global economy.”

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