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Thursday, March 31, 2011

Global Sovereign Risk: The Top 10 Most Risky Debtor Nations (Lists) *March 2011 Month End Review*

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Sovereign Risk


Global Sovereign Risk: Top 10 Most Risky Debtor Nations
* March 2011 Month End Review *

Below is a comparison of and the changes to the Top 10 Most Risky Debtor Nations from The 4th Quarter 2010 CMA Global Sovereign Debt Credit Risk Report (December 31, 2010) to the recent CMA Sovereign Risk Monitor (March 31, 2011). This is a snapshot, the market for collateral default swaps (CDS), on which the lists are based, can be volatile and the Top 10 list can change quickly. Civil and military events, government statements and activity, and credit rating agency actions can change the Top 10 list instantly.


Top 10 Most Risky Nations

The Top Ten Most Risky Sovereign Debt (March 31, 2011) The CMA "Sovereign Risk Monitor" listed the following ten nations as having the highest risk of default:
1    Greece
2    Venezuela
3    Pakistan
4    Ireland
5    Portugal
6    Argentina
7    Ukraine
8    Dubai/Emirate of
9    Lebanon
10  Egypt

The Top Ten Most Risky Sovereign Debt (December 31, 2010) The CMA "Global Sovereign Credit Risk Report: 4th Quarter 2010" listed the following ten nations as having the highest risk of default:
1    Greece
2    Venezuela
3    Ireland
4    Portugal
5    Argentina
6    Ukraine
7    Spain
8    Dubai/Emirate of
9    Hungary
10  Iraq

Changes in and Comments about the Top 10 from December 31, 2010 to March 31, 2011
Pakistan enters Top 10 as #3 on deteriorating foreign debt status
Lebanon enters Top 10 as #9 on deteriorating political situation 
Egypt enters Top 10 as #10 on the revolution and overthrow of government
Spain drops out of Top 10
Hungary drops out of Top 10
Iraq drops out of Top 10


About CMA and the CMA Global Sovereign Debt Credit Risk Report 

CMA, the world’s leading source of independent, accurate OTC credit market data, has unrivalled access to information about what is actually happening in the CDS markets. It combines this unmatched breadth and depth of pricing data with market-leading technology to deliver clear and valuable information to financial institutions around the world. The CMA ranks sovereign default risk by CPD (Cumulative Probability of Default). "CPD quantifies the probability of a country being unable to honour its debt obligations over a given period of time period. For Sovereign CDS, this typically includes the probability of a restructuring of debt."


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* Data Courtesy of CMA *


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Friday, March 25, 2011

Bank Failure Friday: FDIC Seizes 1 Bank (Charts) *2011 Totals: Failures 26, Cost $1.85 Billion*

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2010 bank failures were 157 and 2009 bank failures were 140


Bank Failure Friday: FDIC Seizes 1 Bank

The FDIC closed 1 bank in Illinois Friday, March 25, 2011 to increase the 2011 total bank failures to 26. Annual charts of USA bank seizures, FDIC Deposit Insurance Fund Cost for Failed Banks, and the FDIC problem bank list are below. States where banks have been closed in 2011 are: Arizona 1, California 3, Colorado 2, Florida 2, Georgia 6, Illinois 3, Michigan 1, New Mexico 1, North Carolina 1, Oklahoma 2, South Carolina 1, Wisconsin 3.

Total assets of the closed bank was $163.1 million, based on the December 31, 2010 call report (regulatory financial statements). Overall, this was a small community bank, with total assets less than $500 million. The bank was closed via a purchase and assumption agreement. The estimated cost to the FDIC Deposit Insurance Fund for the 2011 bank closures year-to-date is $1.85 billion. (See chart below).

#26 The Bank of Commerce, Wood Dale, IL
* Advantage National Bank Group, Elk Grove Village, Illinois, to assume all of the deposits
* As of December 31, 2010, The Bank of Commerce had approximately $163.1 million in total assets
* Advantage National Bank Group agreed to purchase essentially all of the failed bank's assets
* FDIC and Advantage National Bank Group entered into a loss-share transaction on $145.7 million of the assets
* FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $41.9 million

The next FDIC bank closings, if any, will most likely be announced on Friday, April 1.

USA Failed Banks by Year

Bank failures and therefore FDIC seizure of banks, dramatically increased in 2009 and 2010 - a 2-year total of 297 compared to 0 in both 2005 and 2006. As noted below regarding total problem banks, bank failures in 2011 are expected to continue at a high rate and be 100+. The chart below is the data from 2004 through 2010. Bank failures for 2011 are estimated by extrapolating 2011 actual closures based on a 52-week year. Actual 2011 bank failures will be included on the chart later this year as the closures accumulate to a higher level.
Year, Total Bank Failures
2004: 4
2005: 0
2006: 0
2007: 3
2008: 25
2009: 140
2010: 157
2011: 26 actual, 113 estimated



FDIC Deposit Insurance Fund Cost of Failed Banks

Failed banks and the seizure by the FDIC cost money. The seized banks' deposits are usually assumed by another bank as are most of the assets. However, not all assets of the failed bank have value (usually the worst performing loans, non-performing loans, repossessions, and foreclosures). The FDIC may enter into a loss-share agreement with another bank to manage the questionable assets or take direct possession of the assets and attempt to dispose of them. Upon seizure of a bank, the FDIC estimates the loss to the Deposit Insurance Fund. The Deposit Insurance Fund is normally funded by the banking community through FDIC assessments to each FDIC insured bank based on insured deposits, plus special assessments. Below is a chart of the estimates by the FDIC of costs (losses) incurred upon seizure of banks in 2011. The chart is by week for 2011 and shows the accumulated losses as the year goes along.


FDIC Problem Banks by Year

The FDIC problem bank list continues to rise, actually skyrocket, although the total assets of these banks has leveled off. Now at 12/31/2010 the total is an astronomical 884. The total assets of the problem banks from the year-ends 2004 through 2009 were $28B, $7B, $8B, $22B, $159B, and $403B, respectively. The total assets of the current (12/31/2010) 884 problem banks is $390B, indicating most of these are small to medium community banks.
Date, Total Problem Banks
12/31/2004: 80
12/31/2005: 52
12/31/2006: 50
12/31/2007: 76
12/31/2008: 252
12/31/2009: 702
12/31/2010: 884





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Sovereign Fiscal Responsibility: The Best & Worst Nations (List) *USA in Worst 10*

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Sovereign Fiscal Responsibility Index


Sovereign Fiscal Responsibility: The Best and Worst Nations

Stanford University graduate students along with the Comeback America Initiative CEO David M. Walker, former Comptroller General of the United States, developed and released a Sovereign Fiscal Responsibility Index on March 23, 2011. The policy brief stated the intent of the Sovereign Fiscal Responsibility Index is, "The goal of this project is to provide a simple but comprehensive analytic tool and framework for citizens, research institutions, and advocacy groups alike to use in understanding sovereign fiscal responsibility and sustainability. It is specifically intended to illustrate where the United States is, where it is headed, and how it compares with other nations in the area of fiscal responsibility and sustainability." A total of 34 countries were analyzed, including the 30 member countries of the Organization of Economic Co-operation and Development (OECD) plus the 4 BRIC nations (Brazil, Russia, India, China). Below is a listing of these 34 countries by their Sovereign Fiscal Responsibility Index, from best to worst.


Sovereign Fiscal Responsibility Index

Sovereign Fiscal Responsibility Index (March 23, 2011) The 34 nations analyzed, from best to worst, are:
Best 10
1    Australia
2    New Zealand
3    Estonia
4    Sweden
5    China
6    Luxembourg
7    Chile
8    Denmark
9    United Kingdom
10  Brazil
Middle 14
11  Canada
12  India
13  Poland
14  Netherlands
15  Norway
16  Slovak Republic
17  Korea
18  Mexico
19  Israel
20  Slovenia
21  Austria
22  Finland
23  France
24  Spain
Worst 10
25  Germany
26  Belgium
27  Italy
28  United States
29  Hungary
30  Ireland
31  Japan *
32  Iceland **
33  Portugal
34  Greece

* Japan's debt rating has just been downgraded.
** Iceland has already defaulted and its Sustainable Fiscal Path reflects reforms made since default occurred.


About the Sovereign Fiscal Responsibility Index

Our definition of fiscal responsibility involves three factors: a government’s current level of debt, the sustainability of government debt levels over time, and the degree to which governments act transparently and are accountable for their fiscal decisions. This implies that responsibility is more than managing one’s annual deficits. Creating sound institutions, rules, and procedures that regulate the budget process are essential.

In addition, the existence of appropriate enforcement mechanisms is also important to ensure compliance. Many studies have shown that in the long run, governments need fiscal rules, transparent institutions, and effective enforcement to remain fiscally responsible.

We derive the SFRI from this definition and create three major components of the index. We measure current government debt levels and consider a country’s fiscal space. We assess the sustainability of government debt levels over time by looking at a country’s fiscal path. Lastly, in determining degree of transparency and accountability, we evaluate each country’s fiscal governance, including the current rules and institutions in place to check for responsible fiscal decision making.


About the Authors

T.J. Augustine, Alexander Maasry, Damilola  Sobo, and Di Wang are graduate students in the Public Policy Program at Stanford.  David M. Walker is founder and CEO of the Comeback America Initiative and former comptroller general of the United States. This graduate team prepared this report on A Sovereign Fiscal Responsibility Index as part of the graduate Practicum in Public Policy, a two quarter sequence required for Master's students in both the Public Policy and International Policy Studies Programs.  The client for this project was the Honorable David Walker, founder and CEO of the Comeback America Initiative (CAI) and former comptroller general of the United States. The full report can be obtained from the Public Policy Program at publicpolicy@stanford.edu. Joe Nation served as the instructor and an advisor for this research team and directs the graduate student Practicum at Stanford University.  He teaches climate change, health care policy, and public policy. Nation represented Marin and Sonoma Counties in the State Assembly from 2000-2006.  He received a Ph.D. in Public Policy Analysis from the Pardee RAND Graduate School; his graduate work focused on budget modeling and long term budget projections.


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Google (GOOG) financial performance and stock charts
Microsoft (MSFT) financial performance charts
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VMware (VMW) financial performance charts
SalesForce.com (CRM) financial performance charts
USA failed and problem banks
Federal Reserve statistical releases
JPMorgan Chase & Co. (JPM) financial performance charts
Citigroup (C) financial performance charts
Goldman Sachs (GS) financial performance charts
Wells Fargo (WFC) financial performance charts
Bank of America (BAC) financial performance charts
Morgan Stanley (MS) financial performance charts
S&P 500 (SPX) charts and review
China economic, Internet, and technology news
Baidu (BIDU) financial performance and stock charts
Links
Stanford Institute for Economic Policy Research (SIEPR)
* Data Courtesy of SIEPR and the Authors*


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