Of course they haven't, there is no mechanism that compels banks to publicly declare the exact nature of impaired loans, i.e. loans for which the ability of debtors to repay has deteriorated but not yet stopped completely. So, banks don't have to reprice loans that have an increasing probability of repayment failure. C&I (commercial and industrial loans) make up anywhere from 22% to 45% of a bank's liabilities, depending on the bank, Fleet Boston has the most. Often, banks shift the worst of these loans off-balance sheet or imbed them in portfolio like securities called CLO's (collateralized loan obligations) which then get purchased by insurance companies or other banks.
Non-performing loans, or loans actually in default do have to be declared. Currently, 3-4% of all C&I loans are non-performing. Since, loans rank higher in the 'waterfall' , or order of repayments, of corporations, loan defaults will occur after bond defaults (which hit an all time high in the first quarter of this year). So, banks could be sitting on a powder keg, yet haven't disclosed the value of additional credit risk they are under. As an example of this, when Enron declared bankruptcy, the Bank of NY still held loans to Enron on their balance sheet at 80 cents on the dollar, as opposed to the 15 cents they were actually worth. Further, JPM Chase was involved in extending $10bln of lifeline credit facilities days before bankruptcies were declared by Enron, WorldCom, Adelphia and Global Crossing (the top 4 bankruptcies this year). Coincidence or general business practice?
Nomi
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