503-785-3485
bill@conerlyconsulting.com
  • Facebook
  • Twitter
  • Linkedin
Conerly Consulting Conerly Consulting
  • Consulting
    • Approach/Philosophy
    • Sounding Board
    • Economics and Business Strategy
    • Assessment
    • Case Studies
    • Testimonials
  • Speaking
    • The Package
    • Topics
    • Testimonials
  • Writing
    • Businomics Newsletter
    • Businomics
    • The Flexible Stance
    • Blog
  • Industries
    • Banking/Finance
    • Manufacturing
    • Other Industries
  • Video
    • Speaking
    • Event Promotion
    • Business Planning
  • About
    • News Coverage
  • Contact
  • Consulting
    • Approach/Philosophy
    • Sounding Board
    • Economics and Business Strategy
    • Assessment
    • Case Studies
    • Testimonials
  • Speaking
    • The Package
    • Topics
    • Testimonials
  • Writing
    • Businomics Newsletter
    • Businomics
    • The Flexible Stance
    • Blog
  • Industries
    • Banking/Finance
    • Manufacturing
    • Other Industries
  • Video
    • Speaking
    • Event Promotion
    • Business Planning
  • About
    • News Coverage
  • Contact
  • Home
  • Economy
  • Avoiding a Recession Without the Bailout Bill

Economy

29 Sep 2008

Avoiding a Recession Without the Bailout Bill

  • By Bill Conerly
  • In Economy
  • 1 comment

The critical issue is whether main street businesses that rely on credit to fund their operations will be cut off, suddenly, from credit.  A sudden cut-off of credit to otherwise healthy companies would trigger a severe recession, but I think we have the tools in place now to prevent that.

Bank credit depends on two key issues:  do the banks have the raw materials for loans, and do the banks have the capital necessary to make loans.

If depositors remove money from banks, there's a raw material problem.  However, the Federal Reserve has the authority to lend to banks as needed to maintain credit flows.  They also have the authority to extend their credit outside of traditional commercial banking.  I am convinced that the Fed will make the raw material available to banks as needed.

The second issue is capital capacity.  Bank shareholders have to have some skin in the game.  If the value of the bank's assets falls, then the capital of the bank falls.  At some point, capital might become insufficient for the size of the bank.  The bank then must either sell more stock, or shrink its assets, such as by refusing to make new loans.

What's the condition of banks?  As of the end of last quarter, commercial banks and thrifts had core (Tier 1) capital equal to 7.89% of their assets.  Is this a lot?  It's down from a year prior, but here's the requirement: to be "well capitalized" a bank needs six percent.  So the industry as a whole was well above standards.  The FDIC Quarterly Banking Profile reports that over 99% of the assets of banks and thrifts were in well capitalized banks.  Banks that are under six percent but over four percent are called "adequately capitalized," but despite the title operate under some restrictions.  With less than four percent capital banks need a plan to pull themselves up to adequate capitalization.

We don't know how the summer's market turmoil is hitting banks.  We'll certainly have a number of banks drop in capital when the Sept. 30 report is published.  However, I think we'll still have adequate capitalization overall.

Here's what bank regulators need to do.  Cut some slack on institutions that have low capital because of mark-to-market requirements in thin markets.  Encourage poorly-capitalized banks to participate loans out to well-capitalized banks.  (This means Bank A lends a company $100, then passes a portion of the IOU over to Bank B.)

With aggressive Fed lending to banks that have lost deposits, along with reasonable judgment by regulators, credit can continue flowing to healthy banks and consumers.  That means the real side of the economy, spending, production and income, do not go into a worse downturn.

  • Share:
Bill Conerly

    Comments

  1. John Beck Real Estate
    October 16, 2008

    This blog Is very informative , I am really pleased to post my comment on this blog . It helped me with ocean of knowledge so I really belive you will do much better in the future . Good job web master .
    http://www.taxforeclosurecurrentevents.com/

Comments are closed.

Search

Sign Up For Our Newsletter!

View Latest Issue

RSS Bill’s Forbes Articles

  • Inflation Has Not Shown Up Yet, But It’s Coming February 25, 2021
    Inflation is muted, but not for long. Inflation is coming in the next two years, then will be followed by a boom/bust business cycle, or maybe two.

Testimonials

We asked Bill Conerly to look at one of the major factors limiting the growth of our business. He pulled together data from a wide range of sources, as well as his own extensive business knowledge, to give us an insight into when conditions would improve and how we could be ready to capitalize on better times. He did so in a straight forward, easy to understand manner. A year later it was clear that things had evolved just as he had forecast. Ever since then he’s been my go-to guy on how the e…
Len Ludwig, former CEO, Vencore Capital LLC
Every time you spoke, we got business.
Chris Rasmussen, Washington Trust Bank, Bank of the Northwest
Your presentation was right on the mark. I received more positive comments about you than any other presenter. We would not hesitate to recommend you to others or have you back for an encore performance.
Bob Russell, Oregon Trucking Association
Thank you for a wonderful presentation. Everyone who heard your presentation was impressed with your analysis, and strong command of facts and theory. More importantly, your ability to weave together substance with humor, in a very dynamic way, meant our attendees learned and retained more information than we would have typically expected. You made economics fun and you left our members with powerful insights on trends and issues to consider as they prepare for the future.
John Aguirre, Oregon Association of Nurseries
Our audience of local business and community leaders not only valued the economic data you provided, but they really appreciated that you made it applicable to their businesses, their personal lives and moreover – that you presented it in a clear and entertaining manner.
Scott Boyer, Mountain Pacific Bank
As you know, it can be difficult to find economists who provide good substantive information who are so entertaining and engaging. I received many enthusiastic comments from members and others in attendance. I was very pleased with Dr. Conerly and have recommended him to NCSTAE, our national organization.
Molly Steckel, Idaho Telecom Alliance
You are a master at your craft and a favorite of our audience.
Jim Parker, UBS Financial Services
On multiple occasions we have engaged Dr. Conerly to facilitate, and more importantly, stimulate strategic planning sessions. He artfully brings the complexity of economic consequences to light, and is also is a veteran voice of objectivity. And his ability to inject humor keeps the energy and teamwork a priority!
Greg Newton, CFO, Cascade Bancorp
Bill Conerly has been an invaluable resource to our executive team and ownership by delivering superior, well-founded ideas that are critical to navigating the current economic climate within the construction industry. Bill assisted O.B. Williams Company with developing a strong business plan that we implemented 18 months ago. As a result and together with Bill, we are improving our position within our highly competitive market segment. We understand that navigating this current economy is indee…
David Wick, CEO, O.B. Williams Company
Bill assisted O.B. Williams Company with developing a strong business plan that we implemented 18 months ago. As a result and together with Bill, we are improving our position within our highly competitive market segment.
David Wick, CEO, O.B. Williams Company (wood products)

Get in touch

(503) 785-3485

bill@conerlyconsulting.com

PO Box 2188
Lake Oswego, OR 97035

Useful Links

  • Consulting
  • Speaking
  • Videos
  • Blog
  • Press
  • Contact

Social Links

  • Facebook
  • Twitter
  • Linkedin

Newsletters

Copyright 2020 Conerly Consulting LLC