Getting Back To "Boring Banking"

These days it seems like bank is a four-letter word and bonus-getting bankers are bad guys, as evil as any comic book villain. All the hullaballoo about the banks passing the government "stress test" makes the average American want to say, "Who cares?"

Well, unfortunately we all have a stake these days in how the banking industry is faring, and not just because our tax dollars have funded billion dollar bailouts. The health of the banking industry is a direct reflection on the health of the economy, and we all pay the price or reap the benefits to a degree.

The stress test given to 19 of the country's biggest banks was conducted by the Federal Reserve to indicate the solvency and future viability of the various banks. Overall, the results were more positive than negative. Bank of America was told that it would need an additional $33.9 billion in capital to weather any future economic storms. Banks are likely to raise the needed capital through asset sales, future earnings, as well as raising capital from private investors.

In fact, the Associated Press reported that "10 of the nation's 19 largest banks need a total of about $75 billion in new capital to withstand losses if the recession worsened. The Federal Reserve's findings show the financial system, like the overall economy, is healing but not yet healed."

While it wasn't great news, it wasn't exactly bad news. In the days since the test results were announced, and even as early news leaked about the government findings, the stock market has continued to slowly climb. Investors seem to be tentatively sticking their heads up from the foxholes as some smoke clears from the battlefields of this recession.

But in many ways it also means the battle rages on for the average American. Banks in need of raising money will likely find ways to get some of those funds out of the little guy through higher fees on bank accounts and credit cards, as well as interest rate hikes. In theory, the stress test results are supposed to reassure everyone and thus get credit flowing. The banks that "passed" the test, like JPMorgan Chase & Co. and American Express Co., will hopefully be more willing to extend credit than they have in the past year.

Or as Justin Fox put it recently in his "The Curious Capitalist" column for Time magazine, it's time for banks to get back to "boring" banking. He contends that the current financial mess was caused by so called shadow banks that got away from well established banking practices and instead engaged in "bad mortgage loans, collateralized debt obligations and all manner of other lunkheaded lending decisions."

What's left of the banking industry now are the stalwart, FDIC insured banks that have earned money the boring way for decades. Fox contends that the rise of other financial institutions, like investment banks, hedge funds and banks focused solely on mortgage loans, took business away from the banks. Eventually banks like Citigroup and many others began to get into shadow banking to compete with companies like Goldman Sachs. The rest is painful history. It may take some time, and we will all certainly continue to pay the price for all that shadowy prosperity of the past, but banks are hopefully on the road to a boring recovery. Boring is good news for the little guy.

Ki's spent several years working in the Austin real estate market as an investor, now it is his business as an Austin realtor. His website has information and stats on Austin real estate as well as a search of Austin homes for sale for buyers interested in the market. He also provides free html mortgage calculator code on his site.