Two Minute Tips

An introduction to covering banking

March 19, 2021

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By Heather Landy, Mary Fricker and Theo Francis – Updated by Yael Grauer

Welcome to one of the most exciting beats in business – at least at the moment. Wall Street aside, the workaday job of traditional banks had long been seen as staid and un-newsworthy, until banks of all sizes and in practically every geographic market got swept up in the latest crisis and started failing by the hundreds.

The banking beat encompasses a wide array of topics – some very specific to the industry (like bank regulation or lending trends) and some that involve the sector’s approach to more universal issues, like corporate governance reform, management succession, quirks of accounting, and changes in technology and consumer behavior.

Banking is an incredibly political topic. When investigating mismanagement, take care not to lump in the First Bank of Wherever with the Bank of America and Citigroups of the world. The CEO at the First Bank of Wherever probably was getting paid a lot less than the infamous “fat-cat bankers” who were taken to task in 2008/2009, and his or her bank probably was not very involved in the esoteric market instruments that were blamed in part for the downfall. That said, beware the small-town banker who blames his or her troubles on everyone else. Many small banks were reckless in their own way, making loans in markets they did not understand, or investing in securities that they hoped would produce outsized returns, or lending to borrowers who had no business getting credit from anyone. There’s no better evidence of all the trouble at small banks than the wave of small-bank failures triggered by the 2007/2008 financial crisis.

The Federal Deposit Insurance Corp. (which supervises thousands of banks and provides the insurance that protects consumers from losing their deposits when a bank folds) shut down four banks in 2019. Another way to gauge the health of the banking industry is the number of FDIC-insured institutions it has classified as “problem institutions.” This number has dropped considerably since 2010, when there were 884 on the “problem bank list.” The number in 2019 was only 51; however, there were 54 in the first quarter of 2020 alone.

Not all problem institutions will fail – and the FDIC never names here – but an expansion or contraction in the number of banks on the problem institution list can help you gauge the general health of the industry.

It took a while for the financial shocks of 2008 to work their way through the economy. (Similarly, it may take time for the effects of the 2020 stock market crash and the economic impact of the COVID-19 pandemic to work its way through the economy.) After 2008, some bankers continued to play a game of “extend and pretend,” hoping that distressed borrowers will recover enough to pay their obligations in full, when what the bank really ought to do is write down the value of the loan. But write-downs hurt the bottom line, so there is a natural tension in the way banks approach loan valuations.

Banks in your town may go away or get acquired. Look for the reasoning for this when it happens. Is it because small banks can’t shoulder compliance costs and are vulnerable to failures or takeovers? Are owners deciding to shut down their business as they approach retirement age? It’s always big news when a bank shuts down or a new owner enters the market

Covering Banking: Challenges, Common Errors and How to Avoid Them

There are several challenges to bank reporting, some you can anticipate, some you cannot. This list of tips are designed to help prepare you in a way that will help limit the challenges and reduce the time you may take navigating them.

• Like any specialized coverage area, the beat has a vocabulary of its own. (The banking terms glossary provided here should help on that front.)

• Income statements and balance sheets for banks can be extremely difficult to interpret, even for business reporters with years of experience in looking at financial statements of other kinds of companies.

• There are many categories and line items that simply don’t appear in too many places outside of banking; the size of bank financial statements can be intimidating, and deciding what to focus on can be tricky at first.

• There are some concepts in banking that can be hard to wrap your head around. A loan is considered an asset, even though it represents money that the bank has temporarily parted with and that might not get paid back in full. Deposits are considered liabilities, even though they literally represent money in the bank – this is because the money belongs not to the banks, but to the depositors, who can yank the money back out.

• The income statement and balance sheet data that I think is most useful to point out, in general, is net income, revenue, net interest margin, loan-loss provisions/releases, nonperforming assets and net charge-offs, and the Tier 1 risk-based capital ratio (see glossary).

Understanding the U.S. regulatory architecture is tough. Even the experts are baffled by our system, which compared with the architecture in other developed countries is very unwieldy. Here’s a quick cheat sheet on that:

• State-chartered institutions (those that get their charter from a state banking department) are supervised jointly by their state chartering authority and either the Federal Reserve or the FDIC. (The bank can choose.)

• National banks are chartered by, and supervised by, the Office of the Comptroller of the Currency (the OCC), which is a bureau within the Treasury Department. Under the Dodd-Frank Act, much of the work of the Office of the Thrift Supervision, which separately chartered and examined thrifts, has been folded into the OCC (some of the work has been divided among the FDIC and the Fed). Of course, Dodd-Frank also established several new bureaus, so in terms of structure, things are only more confusing than they used to be.

• The Federal Reserve oversees state-chartered banks who choose to be part of the Federal Reserve System. Importantly, the Fed also oversees bank and thrift holding companies (which in turns might own chartered banks overseen by the Fed, FDIC or OCC), and Dodd-Frank gave the Fed supervisory oversight of all systemically important institutions, whether they are banks or non-banks. The definition of what makes a non-bank company systemically important is still being worked out.

Visuals can be tough to come by. Beyond statistical charts and photos of bankers and ATM lobbies, it’s tough to be original in your visual presentations. But that makes it all the more crucial to find something unique. I try to think about what’s easy for readers. Instead of looking at a dull chart showing bank merger data, wouldn’t it be more interesting to make a map and show the number of bank deals that have occurred in each state or region?

Sources can be challenging to cultivate, but no more so than in other industries. You’d be hard-pressed to find a regulator or a lawyer willing to whisper the names of banks on the brink of failure; but if you have a general sense of who in your area is healthy and who is in trouble, you can do some deductive reasoning on your own when your friend who works at the front desk of a local hotel reports that a block of rooms has just been taken by a group from the FDIC

Glossary of Terms

Banking surely is a beat with a language all its own. This is a list of some of the key terms you’ll need

to know and will come across frequently. The three sites I consulted in the arrangement of this glossary,

are named below.

Asset: Anything on the balance sheet with value to the company. In banking, this includes loans, which can be a little confusing since loans involve money that a bank has departed with for the benefit of a borrower. But because that money is lent out with the expectation that it will return to the balance sheet eventually, it’s an asset, just like the securities (Treasury bonds and the like) that a bank might own.

Bank Holding Company: A company that controls a bank (or several banks) but is not necessarily chartered itself to operate a bank; a structure favored because of the relative ease with which a bank holding company, as compared to an actual bank, can raise capital. Bank holding companies are regulated by the Federal Reserve, although the banks they own may primarily be under the supervision of another agency, such as the OCC or FDIC.

Basel Committee on Banking Supervision: An international forum for bank supervisory authorities. Administered from Basel, Switzerland, the committee sets capital adequacy standards and other guidelines intended to enhance cross-border synchronization of bank regulations.

CAMEL: An acronym for the rating system that federal regulators use for their examinations of banks (banks are evaluated based on their Capital, Asset quality, Management, Earnings and Liquidity).

Capital: All of the equity in a firm; for banks this generally means common and preferred shares, surplus capital and profits.

Capital markets: Markets where companies or governments can raise long-term funds, i.e. debt and equity. An alternative to bank borrowings for companies that are not self-financed.

Capital ratio: A measure of a bank’s financial health. There are many different types of capital ratios. Commonly cited ratios include the Tier 1 capital ratio, which is Tier 1 capital dividend by risk-adjusted assets; the leverage ratio, which is Tier 1 capital divided by average total consolidated assets; and the so-called Texas ratio, which divides nonperforming assets plus real estate owned by the sum of tangible common equity and loan-loss reserves. See individual entries for each term listed here in bold.

Certificate of deposit: A deposit for a specified term that earns interest at a specific rate; CD terms can be as short as one week or longer than 10 years, with rates generally rising the longer-dated the deposit is.

Charter: The legal authorization, granted by a federal and/or state regulatory agency, for a bank to conduct its business. All banks must be chartered. National banks are chartered by the Office of the Comptroller of the Currency (OCC); the Federal Reserve System charters institutions known as state-member banks; and the FDIC charters insured banks; some state-chartered banks are chartered by state regulatory agencies.

Commercial bank: A financial institution that offers a broad range of services, typically including checking and savings accounts, credit cards and business loans; see entry for investment bank to better understand the difference between commercial and investment banks.

CRA/Community Reinvestment Act: A federal law that requires banks to lend in the areas where they take in deposits; intended to spur investment in poor communities and neutralize biases that might hamper investment in neighborhoods with high concentrations of minorities.

CRE: Bank-speak for commercial real estate

Credit Risk: The risk that a borrower or counterparty fails to follow through and make good on an obligation

Credit Union: A nonprofit cooperative owned by its users; usually for employees of the same company, or members of the same union, etc. Credit unions get tax benefits that allow them to generally offer lower rates and fees than banks, but credit unions have not been without their problems.

Demand deposit: A deposit that can be withdrawn on demand, without penalty; this usually is a deposit in a checking account (also known as a DDA, demand deposit account)

Depository institution: An institution that is permitted to take deposits

Dodd-Frank Act: The omnibus financial reform bill passed by Congress in July 2010 in response to the financial crisis; named for Chris Dodd and Barney Frank, the respective chairmen at the time of the Senate Banking Committee and House Financial Services Committee, the bill established the Consumer Financial Protection Bureau, a new arm of the Federal Reserve; it abolished the Office of Thrift Supervision, the regulator for savings and loans; it created a Financial Stability Oversight Council, tasking representatives of financial regulators to identify and respond to emerging risks to the financial system; and authorizes a wind-down process for large institutions that might otherwise have been considered “too big to fail” (the effectiveness of which cannot be measured until the next failure of a giant institution).

Durbin Amendment: A last-minute addition to the Dodd-Frank Act that instructed the Federal Reserve to cap debit card swipe fees (also known as debit interchange). The amendment, sponsored by Illinois Sen. Dick Durbin, was strongly opposed by bankers and their supporters on Capitol Hill, which worried that the fee cap would prevent banks from covering the cost of providing debit interchange services to merchants that accept debit cards. (The Fed ultimately set a cap of 21 cents per swipe, plus 0.05% of the transaction amount; this may not allow banks to recoup the full cost of interchange when factoring in costs like fraud protection, but it’s higher than the 12-cent cap initially proposed by the Fed.)

Enforcement action: A measure taken by a regulator against an institution for a violation of laws, capital rules, unsound practices, etc. May be preceded by an informal action, frequently referred to as a Memorandum of Understanding, or MOU. Formal enforcement actions are available to the public. For a database of OCC enforcement actions.

Fannie Mae/Freddie Mac: government-sponsored enterprises (GSEs) started by the federal government to facilitate financing for housing; Fannie (formally known as the Federal National Mortgage Association) and Freddie (the Federal Home Loan Mortgage Corporation) were put into conservatorship in 2008, when the government stepped in to guarantee the debt of the GSEs.

FDIC (Federal Deposit Insurance Corp.): The federal agency that insures deposits in banks and thrifts up to $250,000 per customer; the agency also regulates more than 4,900 banks and savings institutions, and is the primary regulator of banks that are chartered by states but choose not to join the Federal Reserve System. For more about the FDIC.

Federal funds (aka fed funds): Short-term loans between banks; these funds are not guaranteed by the Fed or the federal government, but are exchanged between banks by transferring balances from the lender’s account at its Federal Reserve district bank to the borrower’s account at its Federal Reserve district bank.

Federal funds Rate: Rate at which overnight fed funds are traded.

Federal Reserve: The federal agency responsible for conducting monetary policy (with the twin objectives of stable prices and maximum employment) and tasked with regulating certain kinds of banking institutions and maintaining the stability of the financial system. Business writers may be accustomed to following the Fed in terms of the macro-economic environment; from a banking beat perspective, it’s important to know that in addition to setting benchmark interest rates and the like, the Federal Reserve Board and its network of district banks (i.e. the New York Fed, the Atlanta Fed and so forth) has supervisory authority over 900 “state member” banks and 5,000 bank holding companies—and, under Dodd-Frank, any financial institution (even non-banks) that are considered systemically important.

Interchange fee: The fee that a merchant’s bank pays to a customer’s bank when the customer uses a debit or credit card to pay for a transaction; see entry for Durbin Amendment.

Interest rate risk: The risk that an investment’s value will change because of a change in the interest rate environment; for banks, this primarily is a concern.

Liability: An obligation. In banking, this includes deposits.

Loan Loss Provision: An expense set aside to cover bad loans.

Net interest margin: The different between the interest a bank earns on its assets (loans, securities and investments) and the interest it pays out to depositors. Often referred to as NIM, this is a key measurement of a bank’s health and is talked about frequently in the context of rising or falling interest rates.

Nonperforming Asset or Nonperforming Loan: An asset (usually a loan) that is in default or otherwise not producing any income for the bank.

OCC: Office of the Comptroller of the Currency; the Treasury Department bureau that is the chartering authority and supervisor for nationally chartered banks.

Overdraft: The amount by which withdrawals from a checking account exceed funds available in the account; in the aftermath of the credit crisis, the Fed changed the overdraft rules known as Reg E to make overdraft policies more transparent to bank customers.

Payments system: A system that allows for the exchange of debits or credits; the broad term used to describe debit- and credit-card systems.

Private bank: A bank, or division within a bank, that offers personalized services to affluent customers.

Private equity: An investment in equity that is not quoted on a public exchange; private equity firms have become more entrenched in banking in recent years by acquiring stakes (or in some cases buying companies outright) in distressed-bank situations.

Regulation E: See entry for “overdraft”.

Savings and loans: Specialized banks, also known as thrifts, that were formed to promote savings and affordable home ownership; the S&L crisis of the 1980s occurred after thrifts were allowed to invest in risky commercial ventures.

Syndicated loans: Loans that are extended by a group of banks (but administered by a smaller group of banks, or an individual bank); the pooling of credit helps banks to spread risk and helps to support giant funding packages for large borrowers.

TARP/Troubled Asset Relief Program: The federal bailout program devised in 2008 to help ease the credit crisis. Most large banks have repaid their TARP funds, but many credit extensions made under this program remain outstanding.

Tangible Common Equity: Shareholders’ equity that is NOT preferred equity or intangible assets. This figure essentially indicates what owners of common stock in a bank would receive in the event of the bank’s liquidation. Of course, often what common stockholders receive in the event of liquidation is nothing. TCE was very much in vogue during the 2008 credit crisis, but since then the fixation on TCE seems to have been replaced (and probably with good reason) with a fixation on Tier 1 capital (see separate entry below).

Texas Ratio: A ratio commonly examined for risk of bank failure. The ratio is calculated by dividing nonperforming assets by the sum of tangible common equity and loan-loss reserves. When the ratio approaches 1:1, or 100 percent, the bank often is at or near the tipping point for failure.

Tier 1 Capital: A core measure of a bank’s health; this includes equity capital (common shares etc.) and reserves. The ratio of Tier 1 capital to total risk-weighted assets is known as the Tier 1 capital ratio and it must be at least 6 percent to meet coming regulatory standards. Under new bank regulation rules, what qualified as Tier 1 capital in the past won’t necessarily quality as Tier 1 capital in the future; regulators are building a stricter interpretation of what counts as Tier 1 capital.

Sites consulted in the arrangement of this glossary include:

Bankrate.com Glossary

UBS Dictionary of Banking

Resources

American Banker – Banker’s Glossary

Here are several of the key resources, local and national, for the banking industry.

FDIC

The Federal Deposit Insurance Corp. (FDIC) is the federal agency that insures deposits and acts as the receiver for most failed banks. Its website is a treasure trove of data and information, ranging from basic facts about the industry to detailed analysis of banks and sector trends. At FDIC.gov, you can easily find links to the agency’s information and resources. Just click on the “News” tab for media information; for bank data and statistics, click the “Analysis” tab. You can also click on the “Resources” tab for tools, forms, regulations, initiatives and other information.

The FDIC maintains a frequently list of banks that have failed, at FDIC’s Failed Bank List. This list includes the names of banks that have failed, along with their locations and their acquirers. Click on a specific bank on the list for more information including a link to the FDIC’s press release announcing that bank’s failure, details about the acquiring institution, and information that customers and claimants would be interested to know.

The FDIC also maintains a list of “problem banks,” a watch list for banks considered to be at risk of failing. The contents of this list are confidential; however, in the FDIC’s “Quarterly Banking Profile,” available at the FDIC’s Research & Analysis page, the agency will disclose how MANY banks are on the list, which can be useful, along with the pace of actual failures for a given quarter.

Additionally, the FDIC site offers individual state profiles, which you can find under the Analysis tab, under State Bank Performance Summary. You’ll find quarterly trends (usually only a few months behind real time) including the number of banking institutions in your state, total bank assets, loan loss data, loan concentrations by category (residential real estate, agriculture, etc.), average capital ratios, employment data and so on. You’ll also find the largest deposit markets in your state. All of this can be useful as background matter in a story, or it may inspire a trend story on its own.

OCC/Federal Reserve

The Office of the Comptroller of the Currency charters, regulates and supervises all national banks and federal savings associations, along with the U.S. divisions of foreign banks. Its oversight can overlap with that of the Federal Reserve. For example, the Fed is the primary regulator for Citigroup, the holding company for Citibank and all the other businesses under the Citi umbrella. But the OCC is the primary regulator of the Citibank subsidiary, which is a national chartered bank. The OCC site can be useful, but in terms of covering the banking beat, it’s not as robust as what the FDIC offers.

The Federal Reserve site also has information that will be useful to banking reporters (you can see total lending by loan category, etc.), but its biggest strength in terms of data is information on the macro economy.

Local Regulators

It varies state by state, but a quick Google search will bring you to the website of your local bank regulator, which most likely has a feed you’ll want to follow or a distribution list you’ll want to be on.

Trade Groups

Trade groups obviously have their biases, but they can be useful sources of information on all kinds of issues. Groups such as the American Bankers Association (no relation at all to the American Banker newspaper or American Banker magazine) are frequently consulted by legislators and regulators on matters of policy, so they often are in the loop on topics reporters would want to ask about, such as economic trends, regulation, political developments and the like.

• The American Bankers Association represents banks of all sizes.

• The Independent Community Bankers of America represents smaller institutions.

The Bank Policy Institute formed in 2018 when the Financial Services Roundtable and Clearing House Association merged. It represents the nation’s leading banks.

The Institute of International Finance represents about 500 multinational firms, including some of the world’s largest investment banks and commercial banks, along with insurance and investment-management firms.

All of the above websites offer policy position papers, updates on issues affecting their membership, and media rooms and/or guides to experts.

Good Sources Across the Beat

Banking is a beat which demands you draw on sources locally, nationally and internationally. Here are some good ones to get you started:

Good Sources on Failures

Trepp Bank Navigator is a good resource on failures, with quantitative reports about banks that have failed, as they fail. Contact the company to see if it’ll provide you with information and reports.

General Sources: Wall Street

• KBW is a good source of research and commentary on banks. It also is the keeper of the KBW Bank Index, one of the most widely cited stock indexes for the industry. (Quotes for the index are available on various sites including Yahoo! Finance and Google Finance.)

• Sell-side analysts can be difficult to peg down for interviews; they’re generally not terribly interested in speaking to local newspaper reporters, at least in my experience. But if there are banks in your area that you regularly cover, it’s worth it, of course, to try to get on the research distribution lists for analysts that follow those institutions. All the major research houses – Bank of America, Citigroup, Deutsche Bank Securities, Goldman Sachs, Morgan Stanley, UBS Group AG, etc. – follow the sector. Reporters may have better luck with smaller securities firms in their regions.

Academic Resources

• Consult the experts guides of local universities for finance professors who might be able to comment on banking issues in your area. Law schools also can be good resources, especially on regulatory matters.

Several schools have entire research centers devoted to bank and finance issues. Among them:

• Boston University’s Banking and Financial Law department is terrific on bank regulation issues.

• East Tennessee State University has the ETSU Center for Banking.

Others

American Banker

For over 175 years, American Banker has been the bible of the industry. The website has a wealth of information. about all the major issues in the industry: M&A, risk management, regulation and the like.

Unfortunately, you’ll find that some of the pieces here are behind a paywall.

American Banker Magazine

AmericanBanker.com/Magazine is free to all readers! You won’t find much breaking news here (this website is where stories from our monthly magazine are published) but there’s lots of trend stories and analysis pieces that might help you get a sense of the kinds of conversations taking place in the industry.

Bank Lawyers Blog

Banking lawyer Kevin Funnell in Frisco, Texas, keeps this site as a personal blog with his own views on a variety of issues affecting the banking industry.

Consumer Financial Protection Bureau Blog

The Consumer Financial Protection Bureau’s blog.

Bankstocks.com

Hedge fund operator Thomas Brown, a prominent Wall Street bank industry analyst in the 1990s, has teamed up with Commerce Bancorp founder Vernon Hill (a legend in the industry) to create a news and commentary site featuring their own views and those of outside contributors. Warning: both may have conflicts when writing about stocks in which they have positions or eventually take positions, etc. But they offer some interesting commentary on a variety of operational and regulatory issues facing banks.

Senseless Panic by William Isaac

Former FDIC Chairman Bill Isaac wrote a book in the wake of the 2008 crisis that examines the crisis through the historical lens of someone who shut down banks during the banking and S&L crises of the 1980s. Some of it gets political; those parts won’t matter as much to you, as a metro daily reporter, as will his explanations of why it makes sense to treat bank creditors gingerly in failure situations.

Localizing the Banking Beat

Find the lawyers. Just about every major law firm in town will have banking and finance experts who work with institutions on recapitalizations, mergers and acquisitions, regulatory issues and the like.

Lawyers have a direct line to the bankers in your community, and although it’s highly unlikely they’ll break client confidentiality to help you, they do know the important issues affecting the institutions.

They also can be knowledgeable on new regulations, and most likely they harbor strong opinions about the prospects for troubled banks in your region.

Likewise, consultants and accountants can be helpful sources. When I started on the banking beat, I asked a banking accountant to walk me through an income statement and a balance sheet so that I could familiarize myself with line items I hadn’t encountered on previous beats. Chances are there is someone in your region who would be willing to do the same for you.

Talk to borrowers. Small businesses in your region know when it’s harder to get credit. Their experience may indicate that a particular bank in town is in trouble, or that the economy overall is weakening.

Maybe you cover other large companies based in your area. As a matter of your non-bank beat reporting, ask the CFOs and treasurers of those companies who they bank with; go to a Bloomberg terminal to find the lenders and terms of big loans made to those companies. Know which banks are key in your market.

Know your regulators. The federal regulators – the Fed, FDIC and OCC – have local offices in many regions. Get to know the people in those offices. State-chartered banks (as opposed to national-chartered

banks) also are overseen by state banking regulators, and they can be valuable sources.

Some Examples of Terrific Stories

Expansion a goal of CertusBank, which took over Atlantic Southern

From the Macon Telegraph, here is a very thorough story published in 2011 about a local bank failure/takeover situation.

You might not get as many column inches as this writer did, so look through it and think about what would matter most to you if you were a customer of the bank that failed, or a nonprofit in town that relied on the failed bank for sponsorships and support, or any other segment of your readership that might have questions about how things will work under the new ownership. Typical questions include: Why did the failed bank run into trouble? What’s going to happen to the rate on my CD?

What’s going to happen to the local management team? What are the prospects for other banks in our area?

When Colonial Bank fell, BB&T swooped in, becoming Florida force

I came across the following piece in the St. Petersburg Times when I was doing some research for a story about banks making acquisitions in the U.S. South. This article provides a behind-the-scenes look at BB&T’s takeover of the failed Colonial Bank, which went into FDIC receivership in 2009.

This was a large deal, likely larger than most failures we’ll see from this point on in the cycle, but it’s instructive for anyone who wants to understand what goes into a failed-bank takeover, and how a bank that gets shut down on a Friday night can still open for business on Monday.

Banks Took $6B in Reinsurance Kickbacks, Investigators Say

For reporters interested in investigative work, the bank industry offers plenty to chew on. My American

Banker colleague Jeff Horwitz obtained documents leading to a terrific 2011 piece about a previously

undisclosed investigation by the Inspector General of the Department of Housing and Urban Development (since referred to the Department of Justice). Large U.S. banks are alleged to have taken billions of dollars in kickbacks from mortgage insurers in the past decade.

How redlining kept Black Americans from home ownership decades ago — and is still contributing to the racial wealth gap today

This Business Insider story delves into the lending practices known as “redlining” which effectively denied credit to residents of predominantly minority neighborhoods. It explains how instances of discriminatory lending continued well into this decade. The article draws on analysis published in a blog post by the real estate brokerage Redfin.

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds

A ProPublica reporter wrote about a whistleblower claim that securities that contain loans for hotels, office buildings and similar properties have inflated profits—and how this increases the chance of a mortgage collapse.

Covering Banking Failures

Bank failures can happen anywhere and at any time.Scott Trubey, a banking reporter with the Atlanta Journal-Constitution, says he handled the large quantities of Georgia bank failures by cultivating a network of sources that provided him not just with tips, but with analysis that helps him draw his own conclusions. For every bank on his beat, he tracks quarterly FDIC data – some of which is synthesized for him by a local research firm (many of the big securities firms do this kind of work in their analyst reports, etc.) The data can lead to a story all by itself, if an interesting trend appears; or it can be used to monitor which banks are on the cusp of failure.

Knowing that it’s a really bad sign for a bank to have a Texas ratio above 300 percent or a capital ratio of under 3 percent, and using the power of deductive reasoning, Scott knows which banks he should be preparing backgrounders for, so that in the event of failure, he’s got information at the ready and doesn’t have to scramble as much for story content.

When a failure occurs, you’ll usually hear about it first in a press release. Failures of state-chartered banks often are announced by state banking regulators before the FDIC announcement appears, so be sure you’re on the distribution list for releases from your state banking agency. The FDIC and

OCC also have feeds you can sign up for or otherwise monitor. You also should monitor enforcement actions that any of the bank regulatory agencies announce against the banks they supervise; these can be signs of trouble. When regulators spot a problem, they will try to clear it up quietly and/or through an informal enforcement action, under a Memorandum of Understanding or MOU. Banks will disclose

MOUs in their quarterly/annual SEC filings. If the MOU does not lead to a solution, a formal enforcement action is the next step, and if the bank still fails to do what’s required of it (to raise capital, to address a soundness issue, etc.) then that’s a bad sign for the future of the bank.

More Like This...

An introduction to covering banking

The following is an excerpt from a Beat Basics Update by Heather Landy, Mary Fricker and Theo Francis and updated by Yael Grauer on covering banking. You can read the entire update to

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