Bad loans by regional banks should concern us all

When you can’t repay a bank loan, that’s distressing — but probably not for the bank.

But when tens of thousands of people, who had good credit ratings, can’t, it raises concerns about the health of the economy.

And when it’s companies defaulting on very big loans, leading to charges — that is, money the bank writes off as a loss because it has given up on recovering it — and bankruptcies, it’s time for everyone to put on their detective hats.

Both First Brands, an auto parts manufacturer, and car dealership Tricolor Holdings filed for bankruptcy in September. Major banks such as Jefferies, UBS and JPMorgan had exposure to either of the two companies.

“Questions are now being asked about how the demise of a relatively unknown auto parts supplier has spread across the global banking and fund management industry, where potentially billions of dollars are entangled in the collapse,” wrote CNBC’s Hugh Leask.

The worries intensified Thursday stateside when two U.S. regional banks raised issues with their loans.

All of the above could be isolated incidents unrelated to each other.

But “when you see one cockroach, there are probably more,” JPMorgan CEO Jamie Dimon said on the bank’s earnings conference call earlier this week.

And rotten loans do not stay within the banking sector. The 2008 global financial crisis — which caused millions to be laid off and economies to sink into a recession — was in part triggered by the subprime mortgage crisis, in which, very simply put, people couldn’t pay for their mortgages.

Then, the cockroaches ran free.

Bank loan worries make it easier for Fed to cut interest rates, Jim Cramer says

As news of sour banks loans rattled Wall Street, CNBC’s Jim Cramer said the developments will pave the way for the Federal Reserve to lower interest rates — a move that investors across the board have been hoping for.

“Today got real ugly, but at least we finally have something that can make the Federal Reserve itchy to cut interest rates sooner rather than later: bank loans gone bad,” he said. “Nothing motivates the Fed to move faster than credit losses, because they’re a definitive sign that the economy is going south.”

— Julie Coleman