Analyst Says Bank Losses are Moderating

A hopeful sign for the banking sector, courtesy of analyst Chris Whalen. The industry remains gravely ill, but at least the disease isn’t progressing, he said this morning in an email message to subscribers.

While it is possible that the overall level of industry stress could rise or fall as we see the rest of the FDIC bank units report for Q3 in the next three weeks, we think that this preliminary result confirms the general trend in the industry toward moderating loss rate increases.

Of course, it’s still pretty bleak out there, especially for smaller banks. Although industry conditions appear to be stabilizing — bank loans are falling apart more slowly, for instance — many institutions are sick, and many will succumb before the contagion ends. An FDIC official in September predicted that losses from bank failures would eventually top $100 billion, while Whalen says that more than 1,000 institutions are in danger of collapse.