The second half bank failures are in full swing (I missed last week due to vacation. Six banks failed). Today, seven banks were added to the FDIC Failed Bank List:

1. Sterling Bank, Lantana, FL - $372.4 million in total deposits and an estimated hit to the Deposit Insurance Fund (DIF) of $45.5 million. This deal required a loss-share agreement between the FDIC and IBERIABANK entered on $244.3 million of Sterling Bank’s assets.

2. Crescent Bank and Trust Company, Jasper, GA - $965.7 million in total deposits and an estimated hit to the DIF of $242.4 million. This deal required a loss-share agreement between the FDIC and Renasant Bank on $617.4 million of Crescent Bank and Trust Company’s assets. All 11 branches will reopen for business on Saturday.

3. Williamsburg First National Bank, Kingstree, SC - $134.3 million in total deposits and an estimated hit to the DIF of $8.8 million. This deal required a loss-share agreement between the FDIC and First Citizens Bank and Trust Company, Inc. on $64.4 million of Williamsburg First National Bank’s assets.

4. Thunder Bank, Sylvan Grove, KS - $28.5 million in total deposits and an estimated hit to the DIF of $4.5 million. Nothing particularly special about the deal, which these days is pretty special. This was the 100th bank to fail this year.

5. Community Security Bank, New Prague, MN - $99.7 million in total deposits and an estimated hit to the DIF of $18.6 million. The bank will reopen Saturday.

6. SouthwestUSA Bank, Las Vegas, NV - $186.7 million in total deposits and an estimated hit to the DIF of $74.1 million. This deal required a loss-share agreement between the FDIC and Plaza Bank on $111.3 million of SouthwestUSA Bank’s assets.

7. Home Valley Bank, Cave Junction, OR - $229.6 million in total deposits and an estimated hit to the DIF of $37.1 million. This deal required a loss-share agreement between the FDIC and South Valley Bank & Trust on $211.6 million of Home Valley Bank’s assets.

We’ve now witnessed 103 failures for the year. The FDIC planned on an increased failure rate in the second half, something that appears to be panning out. Even if the financial crisis was truly over, bank failures would continue for some time (they are a lagging indicator). Since I doubt we are even half of the way through this, expect failures for quite some time. Absent another bubble, many local and regional banks are going to struggle.

This is probably more significant banking news than the European stress tests:

Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.

About half of all loans need to be serviced by secondary sources including guarantors because the ventures can’t generate sufficient revenue, the person said, declining to be identified because the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.

Simple checklist:

1. Massive loads of unserviceable debt? Check
2. Huge counterparty risk from guarantees that experts thought never would need to be called upon? Check

On the plus side, there’s a chance that the banks will raise capital before the window closes:

The nation’s five-largest banks, including Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after the sector extended a record $1.4 trillion in credit last year.

Still no reason to panic?

I starting looking at this graph to help convince myself (and a few others) that hyperinflation wasn’t going to be the immediate impact of the exploding monetary base. In the passing year, bread still isn’t a thousand dollars a loaf, so it is possible that we haven’t yet had hyperinflation.

At this point, I’m a little surprised these two have managed to track each other so perfectly. As before, the explosion (and wiggly increase and contraction) in the base money supply is entirely explained by the excess reserves plugging the gaping holes on banks’ balance sheets. Neither inflation nor deflation has emerged as a true victor here. All of this is merely a chart of the Federal Reserve’s (successful, so far) attempt to prop up the banks.

Do you know what would be really impressive? If that green line manages to keep on its current trend through the next crisis. Whether that crisis is crunching state budgets, bank failures in Europe, stock market collapse in the US, or any of the other big potential problems, if those red and blue lines manage to track one another, that would be impressive. There’s only a single small bump in the green line during all of that chaos. And do you know what would be scary? If that green line deviates too far from the trend. That means the Fed has lost control of monetary policy. Unfortunately, sometimes authority and effort aren’t enough to determine outcome.

(source: St. Louis Fed: FRED Graph)

The CEBS (the people responsible for reporting the stress tests) website is really slow right now. I guess people are actually interested in the details.

I’ve been watching the various reactions to the stress tests. I even got online to ask a buddy in Europe for a man-on-the-street perspective (he decided to go to a pub and start a brawl). The general consensus seems to be “Glad we got that farce over with, now we can move on.” But I’d like to offer a different perspective:

Everything is great again:

Seven European Union banks failed the region’s stress tests with a combined capital shortfall of 3.5 billion euros ($4.5 billion), according to the Committee of European Banking Supervisors, which coordinated the initiative.

It is hard to stress how impressive this is. Just a day ago, from data from the banks themselves, we were told to expect a shortfall between 24 billion and 83 billion euros (some estimates were actually higher). Fortunately, the results of these stress tests make it clear that the banks have no clue whatsoever how much money they need. This should fill everyone with confidence. I mean, finance is only their primary function. They should be able to be off by a factor of 10 or more and everything should be fine. Fortunately, the banks can be off on their estimate of needs by a factor of 10, but there’s zero chance of the stress tests being off of their loss estimates by a factor of 10.

Confidence restored (except for those seven banks that failed. They are totally screwed).