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Bank burndown analysis

So here's a strong first step: the Treasury Department needs to hire out-of-work bankers to conduct what investors call a "burndown analysis" of banks' financial positions. This is what private investors do as they go foraging for gems hidden amid the wreckage in the banking system.

A burndown analysis, because it is a worst-case exercise, typically requires very pessimistic estimates for loan performance early on and higher-than-average loss estimates for loans in later years. A bank's prospects also derive primarily from its deposits, not its loan book, in such an assessment. To reiterate: Any examination of a troubled financial institution needs to determine what its assets are truly worth, how much can it earn and how much capital it needs to operate at a profit.

The Worst Misstep: Geithner Added to the Doubt
Published: February 15, 2009
The plan unveiled by Treasury Secretary Timothy F. Geithner was vague because vague is less scary, but investors have lost their patience with vague.


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