The mood on Wall Street this spring is very different from last fall.
Last October, NPR host Robert Siegel visited with Will Aston-Reese, vice president for money market sales at Tradition Asiel Securities in New York City. The visit took place not long after Lehman Brothers collapsed and credit markets seized up.
The company has a wall full of white boards; they track the state of interbank lending, the types of loans banks are looking for — and the types they are willing to make.
Last fall, there was a lot of empty white space on that wall. At the time, Reese said it was like watching paint dry. Today, the white board has a lot more blue and red ink on it. But there are still more banks on the board that want to borrow than banks that want to lend.
"We're seeing more of the non-bank lenders come back into the market — the money market funds, corporations who are traditional buyers of fixed-income instruments and certificates of deposits," says Aston-Reese. "They are coming back in and buying somewhat freely."
Is there anything that would signal a breakthrough and an end to the financial crisis?
"The Fed has flooded [the] system with about $800 billion of excess reserves. But what needs to happen is that the banks and portfolios need to work the toxic assets off of their books," he says.
Referencing the so-called stress tests of banks' books that the government is currently conducting, he says, "What also needs to happen is that the stress test needs to run its course, so that some of the investors feel a little bit more comfortable investing or giving money to the banks."
That way, when a bank wants to borrow, it will have a seal of approval from the U.S. Treasury.
Banks Healthier Than Perceived?
Robert Kelly, chairman and CEO of Bank of New York Mellon, says the bank took $3 billion in funds in 2008 from the Treasury's Troubled Asset Relief Program (TARP).
"The good news is that we were profitable every quarter last year, unlike many banks," Kelly says. "We're very, very liquid and our capital ratios are stronger than most."
Many of the largest 19 banks in the country have been planning for both good and bad economic scenarios, he says. Kelly says he hopes that government stress tests for these institutions will be completed as early as May.
"I think in concept it is an excellent idea to do this," he says. "So now we have to, I think, get the numbers out there and declare victory as a nation, because most of the banks are healthier than what the average American thinks."
Kelly says a simple solution might be to create three categories for classifying banks: "really well-capitalized," which would mean in good shape to repay TARP funds this year; "well-capitalized," which would mean the banks would hold onto their TARP funds for the time being; and "not well-capitalized," which would mean the banks will probably need more capital going forward.
"Our expectation is that we will repay TARP at some point — hopefully this year," Kelly says of Bank of New York Mellon's position. "And I actually think the taxpayer will end up with a very nice return from us in the end."