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Measuring Stress in the Banking System

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There are 752 publicly traded banks that are candidates for the list of problem banks.

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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValueEngine, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.


The yield on the 10-Year Note
is below my semiannual pivot at 3.675, as risk aversion is trumping supply. The 200-week simple moving average is key support at 4.01. Monthly resistance is 3.504.



Comex gold shows the 200-week simple moving average as support at 822.3. Gold is nestled among quarterly, annual, and semiannual pivots at $1084.9, $1115.2, $1139.7 and $1186.5.



Nymex crude oil has been trading around its 200-week simple moving average at $76.25, which has been a pivot since mid-2009. A weekly close below my annual pivot at $77.07 signals reduced global energy demand.



The euro is approaching its recent low at 1.3450 with the 200-week simple moving average as resistance at 1.3883.



The Dow is below my annual pivot at 10,379, but a close above today could signal strength to the 200-week simple moving average and annual resistance at 11,147 / 11,235. We need a close today below 10,067 to sustain the monthly key reversal.



The Housing Index (HGX)
has been trying to bottom, but has been blocked in a trading range from the March 2009 low of 55/54 and overhead resistance at 117/120. Note the top that I predicted at the end of July 2005. The 200-week simple moving average is resistance at 148.33.



The America's Community Bankers Index (ABAQ)
peaked at the end of 2006 and like the homebuilders is trying to bottom. The March 2009 low was 122.75 and horizontal resistance is 160. If that level is taken out, the upside is to annual resistance at 195 with the 200-week simple moving average at 223.55.



The Regional Bankers Index (BKX) peaked in February 2007, and like the homebuilders and community banks is trying to bottom. The March 2009 low was 17.75 and horizontal resistance is 50. If that level is taken out the upside is to annual resistance at 73.12 with the 200-week simple moving average at 77.86.



The Emerging Markets Fund (EEM)
shows that a close below the 200-week simple moving average at 37.84 is negative. My annual pivot is 39.81 with annual resistance at 44.99.



The China 25 Fund (FXI)
shows that a close below the 200-week simple moving average at 38.89 is negative. My annual pivot is 39.25 with annual resistance at 44.53.



Tracking the Stress in the Banking System

There are 380 publicly traded banks overexposed the C&D loans, and another 372 overexposed to CRE loans only. That's 752 publicly traded banks that are candidates for the ValuEngine List of Problem Banks.

Looking at all 8,012 FDIC-Insured Financial Institutions we find 1,514 overexposed to C&D loans, and another 1,312 overexposed to CRE loans only. That's 2,896 banks or 36.1% of the 8,012 at risk of failure.

When I dissect loans versus loan commitments, which I call Pipeline, even more banks are feeling additional stress. A "normal" or "healthy" pipeline is when 60% of the C&D and CRE loans are outstanding versus a bank's total commitment to these types of loans. Of the 8,012 FDIC-Insured Financial Institutions only 594 or just 7.4% have a pipeline between 55% and 65%. Most bank failures have a pipeline above 80%, which is a sign of collection problems: 4,172 banks or 52% have this stress characteristic. Of these, 1,406 have a pipeline that's 100% funded, which is 17.5% of all banks.
No positions in stocks mentioned.
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