05 June 2008

Fed Kohn - Number of banks with less-than-satisfactory ratings will rise further

Banking organizations must be prepared for the possibility that liquidity conditions become tighter, Kohn said. Over the coming months, we expect banking institutions to continue to face deteriorating loan quality.

Banking organizations must be prepared for the possibility that liquidity conditions become tighter if uncertainties in the capital markets fail to subside or if credit conditions deteriorate significantly, Vice Chairman Donald Kohn said. Over the coming months, we expect banking institutions to continue to face deteriorating loan quality.

 

The Federal Reserve expects that bank holding companies will continue to report weak earnings and further asset valuation writedowns and/or significant credit costs in coming quarters, he added.

 

“Coverage of nonperforming loans by loan loss reserves has not kept pace with growth in problem assets and bank holding companies may likely face the need to further bolster loan loss reserves”, Kohn said. “In view of this uncertain outlook, additional capital injections and the consideration of dividend cuts are still warranted for some of these companies and we have strongly encouraged supervised bank holding companies to enhance their capital positions.” 

 

“Accordingly, we anticipate that the number of banks with less than satisfactory supervisory ratings will continue to increase”, he said and warned that banks' problems could extend to other areas.

 

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