“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.”

Well? Are you right? Is Conerly right? Is effing anybody “right?” Your blog entry and Conerly’s what appears to be completely contradictory entry are the reason most of us laymen are so frustrated and pissed off with this so-called response to the problem. Sheesh!