Bank stress test has record of accuracy

In response to Sunday’s letter to the editor from William E. Martin, vice chairman and CEO of Service 1st Bank of Nevada:

We welcome Mr. Martin’s comments concerning your Aug. 2 article, “Woes may bring bank failures: Some Nevada Institutions could lack capital,” in which the reporter referenced certain information on bank stress tests produced by Invictus Consulting Group.

These are not forecasts or “fear factor” analyses, but are stress tests based on a large amount of data, embodying the methodology actually employed by banks to review loan loss reserves and used to evaluate the sustainability of a bank’s Tier 1 capital during a period of prolonged economic problems. Extensive back testing has demonstrated the Invictus model to be highly accurate. As a result, stress tests developed by Invictus are in use by a number of state bank regulators to review preparedness of banks for economic stress. The use of stress testing is rapidly becoming best practice, which we believe will increase as the regulators require stress tests of an increasing number of banks.

The bank-by-bank information (including any depository institution that files an FFIEC call report or Thrift Financial Report) that we aggregate on state and regional levels provides a very accurate snapshot of the true economic activity of the region. The analysis is a proxy for the community bank lending activity and their stress distributions within a state/region, enabling a bank to evaluate its own portfolio mix within its competitive marketplace. For instance, the troubled banks we identified in Nevada have an excessive exposure to construction and land development and inadequate reserves against this loan allocation.

We also note that the residential real estate exposure of Mr. Martin’s institution is not at all representative of Nevada banks. While Invictus conducts interest rate and liquidity stress tests, they were not central to the findings of the published study.

The results published on our website indicate that 19.4 percent of the depository institutions chartered in Nevada (excluding banks over $20 billion) have potential problems. However, the institutions that exhibit these potential capital issues represent only 3.2 percent of the total assets for that same universe. That’s second-best in the nation, far from impending doom.

However, this does not negate the fact there are banks within the state of Nevada that will have some capital issues in the future.

Leonard J. DeRoma

New York

The writer is president of Invictus Consulting Group.

Senior voters

To the editor:

Letter writer Mark Traeger had two questions to ask of seniors in Wednesday’s Review-Journal: Why did we vote for politicians who raided Social Security funds, and why would we stand in the way of fixing the problem left behind? Mr. Traeger’s questions seem to be addressed to all seniors whom he believes to be both ignorant and harboring feelings of entitlement.

In his first question, Mr. Traeger assumes that the senior constituency should be composed of single-issue voters, and that they disregard all other considerations, such as war in the Middle East, the budget deficit, illegal immigration, etc. He wants seniors to just focus on the one issue that concerns him: punishing politicians who plunder Social Security.

All and each should pay the price at the ballot box, and we are stupid to re-elect them. But I also believe that single-issue voters are terrible for democracy. The whole-person approach is best when viewing a candidate for office. Do they have the background and experience to uphold the best traditions of public service in that office? If we elect politicians without first vetting them, then we get inept individuals running our country, which we now have. And we, as a people, deserve them, because we were too lazy to do our homework.

As for Mr. Traeger’s second question, I welcome a chance to balance the budget on a fair, proportional basis, even if it means that my benefits might take a hit. But I’ll only agree if the tax loopholes for the wealthy are removed and everybody pays their fair share. I, too, believe that the old and greedy, as opposed to the old and needy, should back off their demands and think about the welfare of the younger generation.

Richard York

Las Vegas

Reform recommendations

To the editor:

As a loyal Democrat, I would like to respond to Mark Traeger’s Wednesday letter regarding entitlements. I agree. The Democrats need to get serious about adjusting Social Security, in particular. Here are my recommendations, which are along the lines but not the same as those of the Bowles-Simpson Commission.

1. Eliminate the current $106,300 cap on wages subject to Social Security withholding. Why should multimillionaires pay the same amount of Social Security taxes as someone who makes $106,300?

2. Raise the age of qualification. I will leave this to the experts after they determine how much money would be raised by item 1. Bowles-Simpson suggests 69 years old by 2075, which seems very reasonable.

3. Impose a means test, which would begin after a Social Security participant has collected benefits equal to all his/her contributions. This would have the less fortunate among us continuing to get full support.

Regarding Mr. Traeger’s advice not to vote for the politicians who spent our Social Security monies rather than set them aside: Who do we vote for, Ralph Nader?

Gary Musser

Las Vegas

Sick-leave probe

To the editor:

Your Friday story on Clark County’s investigation into sick-leave abuse by firefighters perfectly illustrates why many labor contracts are not worth a bucket of warm spit.

To cite “privacy concerns” or “confidentiality rules” as valid reasons to shield wrongdoers from public scrutiny simply argues in favor of changing these odious rules and renegotiating many of our faulty labor contracts.

Commissioner Steve Sisolak had it right when he pointed out that the malfeasance and misconduct of the offending firefighters is an offense against every citizen and should not be overlooked.

Public employees should have total control of their own unions so it’s not possible for a small cadre of union leaders to negotiate contracts and make political contributions in the name of the union without the unanimous consent of its members.

TONY BADILLO

LAS VEGAS