Exposure at Default: As Banks Shrink, So Does the Economy

``... the data series for the large bank peer group, which actually managed to go against the negative trend of the top four banks until Q2 2009. Now it appears that the entire large bank peer group, roughly the same institutions in the Treasury lending survey, are all trying to reduce [Exposure-at-Default] as the banking industry heads into the worst part of the credit crunch in 2010. This, by the way, is why Citigroup, Bank America and other happy campers like SunTrust (NYSE:STI) are making all of this noise about repaying the TARP, hoping against hope that they can raise more common equity before those Form 13s starting appearing on EDGAR, showing that the smart money is running away from financials at flank speed... Indeed, we have to wonder whether the FDIC should even try to impose another assessment on the banking industry to fund failed bank resolutions when the effect of this action is to remove capital from the system and thereby accelerate the shrinkage of the collective balance sheet of US banks. ''