Are our banks "fundamentally sound"?

Question

I keep hearing Mr. Paulson say how sound our banking system is, yet talking to my bank manager, he tells me that the forecast that they are getting say that it is probable that another 150 banks will go out of business by the end of the year. I also hear on Sunday Morning, the news show, that we have only seen about 3% of the total housing bubble burst, meaning we still have 97% to go. My question to Mr. Paulson is, would you be on TV to tell people that the banking industry is NOT sound? I doubt it. I believe in being as positive as possible, but I also believe in being honest as well.

Answer 1

I believe holistically that the banking system is sound. The banking system went through some radical changes after the depression and even after the savings and loan debacle. However, 150 banks is not a lot in the grand scheme of things. Could that many go out of business by year end? Sure! Most banks that had overexposure to subprime lending are feeling it the most. I would recommend calling your bank to discuss these issues.

Answer 2

"The banking system is sound."

"150 banks estimated to go under"

These two statements are not as opposed as you think.  The system as a whole is under some pressure but there is no sign it will fail.  There will be some individual banks failing, but FDIC either arrange for mergers or rescues, or will cover the individual deposits up to the stated limits (although FDIC may have to raise fees on the member banks -- they have had to before).  Note that 150 is a lot lower than the number of banks that failed in the S&L crisis, and the banking system survived that just fine.

The '97% to go on the housing bust' is an extreme overstatement -- wonder who was it that claimed that?  Do you have a cite (a URL)?