It all started routinely enough, with a boilerplate article on regional banking that appeared in our Business Day section. "Bank losses in Northeast up 4 percent in quarter, or some such," we reported. "Blah, blah, blah," I thought to myself as I read the article. "What I want to know, if I have a checking account in Boston, is whether my bank is about to fail!" It turns out I wasn't alone in that question.
But one problem in an organization as large as The Times is figuring out just who should be asking the question. A few days after the "bank losses" story appeared, I went to our Washington Bureau to discuss computer-assisted journalism and how we could apply it. One of the people I spoke with was our Washington banking reporter. "Wouldn't it be more interesting and informative," I asked, "to list specific banks that might be in trouble?
Or, for that matter, on shakiest footing?" Everyone around the table nodded in agreement. But nobody seemed motivated to follow up. Back in New York, my boss, Dave Jones, an assistant managing editor, framed a series of questions: Are there standards, agreed on in the industry, to rate banks? Are the data on which the standards based publicly available? If we get it, should we print it? The last question was the easiest to answer: Yes.
While we feared we might start a "run" on a bank, the overarching feeling was that insiders already knew which banks were weak; the only people in the dark were the depositors. At the same time, Business Day appointed a special projects editor. One of his first efforts was to coordinate a series on banking. And we found the right reporter to ask our questions: Mike Quint, our New York-based banking reporter.
He quickly provided the other answers. Yes, there are standards that are generally applied. And yes, the data are available. Each bank in the United States falls under the purview of one or more Federal agencies: the Comptroller of the Currency, the Federal Reserve, or the Federal Deposit Insurance Corporation. As a result, four times a year each bank is required to file a detailed balance sheet and income statement with the government called a Call Report.
About three months after the end of each quarter, the Call Reports are available on tape from the National Technical Information Service (NTIS) for $600. So in mid-January, we ordered the tape, with a target of starting our banking series in the last week of January. I advised the business section that such a timetable was tight, but I thought I could make it, depending on how "clean" the data were.
The tape arrived Jan. 21, just six days before we were going to press. The documentation was in two separate books! And the government divides banks up by size, so the location, say, of the assets field would vary depending on the size of the bank. I'd need a few extra days. The series was rescheduled for Feb. 3. By the end of the week, though, I had key financial information available on each of the 13,000 banks in the country.
It was a snap, then, to rate each on one of four scales that experts said were meaningful: capital-to-asset ratio; concentration of commercial real estate; percentage of loans in trouble; or insolvency. Since the figures were from Sept. 30, we thought we'd also check to see how many banks on our "weak" lists had actually failed in the intervening four months. About a dozen had, besides the dozen or so that were already in receivership on Sept.
30. We decided to make the lists of problem banks the centerpiece of the series. We produced lists of the 100 or so weakest banks by each of the standards, and sorted them by state and region. Then we started looking at banks that made more than one list. It turned out that two banks made all four! We sent our reporter to White River Junction, Vt., where one of the two, Valley Bank, was located. It was both a fascinating study and a warning of what can go wrong with a bank.
Valley Bank was established in 1987, in the midst of the real estate boom. But because it was a new bank, the established developers wouldn't deal with them. So they lent to the more speculative ventures. When the market collapsed, a huge proportion of the Valley's loans defaulted. The bank's leadership was forced out. And today the Valley Bank is "looking everywhere for capital." With the help of NineTrack Express to download the data and FoxBase (a clone of dBase) to do rankings, the listings were ready to run on Feb.
3, as planned. But the editing process being what it is you can find in the paper of Feb. 17.