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Cut Capital Standards, Cut Red Ink

From: "Cut Capital Standards, Cut Red Ink", Credit Union Journal, 4/27/09

Reducing capital standards to 3% reduces the number of natural-person credit unions needing assistance by 1,000, according to Mike Moebs of Moebs $ervices, who offered a preview of what the results of the Treasury's "stress test" will look like.

On the banking side the group needing help drops to 5,093 banks that would require $514 billion, and approximately 4,900 community banks that would need $114 billion. The community banks and CUs make up 14,700 of the 16,000 financial institutions, he said.

"The community banks and credit unions provide services to 60% of the small businesses, which constitute 54% of (employers of) every worker in the U.S.," Moebs explained. "Community banks and credit unions have been in what I call the bailout desert. Yet, they are the ones that can get the country moving because that is where over half of the small businesses are and over half of the workers."

Looking at the $586 billion financials have in reserves today, Moebs suggested the Fed "charge for its reserve position. I am suggesting that the Fed charges those financials who have more than 8% capital. This would make that money move to loans, primarily because the community banks and credit unions have no source, other than Government securities at very low rates to invest that money."

Moebs estimated that would get $100 billion moving just through the community banks and CUs. "Simultaneously they would have to lower capital standards," concluded Moebs. "Because, ultimately, what does this all come down to? It's the classic accounting equation-assets equal deposits plus capital. If we lowered capital standards and simultaneously charged those who have excess reserves, and put up about $576 billion more solely from private investors and not one cent from the government, we would get the economy moving very quickly.

Written By: rnybeck
Date Posted: 6/29/2009
Number of Views: 2006