Major headlines today and simply shocking.

Some US banks face failure as credit problems mount-RBC
Mon Apr 7, 2008 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said. “We anticipate upwards to 150 banks will fail over the next two years. Banks that deplete their capital through rising credit losses are most vulnerable to failure,” Gerard Cassidy said.

He said credit problems at U.S. banks are expected to worsen throughout the year from existing levels and are unlikely to peak until sometime next year, also noting that widespread housing deflation will put further pressure on the economy. “As we move deeper into 2008, we expect to see economic growth grind to a halt with recessionary pressures mounting as the year progresses,” Cassidy said, recommending investors “underweight” the bank sector.

Let’s take a deep breath in now…

Fitch: Bank systemic risk still rising; global credit growth falling
April 8, 2008 - Fitch Ratings, in its latest semi-annual “Bank Systemic Risk report” issued recently, says that banks worldwide face an increasingly challenging operating environment. Bank systemic risk continues to rise, the US and Swiss banking systems have weakened due to the US subprime crisis, and a sharp fall in global credit growth is underway. “Large, global banks in several major developed countries have been hardest hit by the US subprime crisis, marking this crisis out from more familiar, country-specific banking crises,” says Richard Fox, Senior Director in Fitch’s sovereign team. “The US and Swiss banking systems have been toppled from their top, ‘very strong’ ranking based on Fitch’s Banking System Indicator. But this still leaves them on a par with most developed country banking systems which remain ’strong’. In the US, losses and writedowns to date, while still mounting, fall well short of aggregate system capital - a conventional measure of the severity of a banking crisis. But global real credit growth is forecast to slow sharply to 9% this year, from over 14% last year, and leading indicators of potential stress are flashing in more emerging market regions.”

The fall in the US Banking System Indicator (BSI) to ‘B’ from ‘A’ reflects Individual rating downgrades for over 30 banks and bank groups since October. “Fitch expects ratings pressure to remain for the remainder of 2008, but a further decline in the BSI is not envisioned,” says James Moss, Managing Director of Fitch’s North American Financial Institutions team. “The largest US banks have raised in excess of USD60bn in new capital to date, often in amounts representing 10% or more of a firm’s capital base.”

We can indeed understand why the Federal Reserve is getting nervous…

Fed Officials Worried About Recession - april 8, 2008 WASHINGTON (AP) — Worries about a deep recession drove Fed policymakers to slash a key interest rate last month, minutes of their closed-door meeting show. Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of “prolonged and severe” business downturn. It was in that environment that they vote — with some dissent — to cut this important interest rate by three-quarters of a percentage point to 2.25 percent. That action capped the most aggressive Fed intervention in a quarter-century. Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and “ongoing weakness in the housing market,” according to the meeting minutes that were made public Tuesday…

Bear in mind…
US Subprime Crisis to Claim 200,000 Bank Jobs