The 5% Dissolution Solution

5%. That's the magic number, the secret formula, to push banks over the edge into the loving arms of the FDIC. Like date night, bank seizure is now a Friday tradition. In other words, the magic 20 to 1 good debt, bad debt ratio is the tipping point and probably will cause the bank to fail. The dreaded 5 is the ratio of non-performing loans, often aliased as toxic assets.

In Bloomberg's Toxic Loans Topping 5% May Push 150 Banks to Point of No Return :

More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The last tally from Bank Failure Friday is 72. Now we are talking about 150, almost double all bank failures during this crisis, are peering over the cliff of doom.

Bloomberg is keeping a list and claiming 150 are at the magic number and over 300 banks, not worthy to be deemed Zombies, otherwise known as TARP recipients, are approaching the 5% solution.

Did you notice another month of record foreclosures?

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