The four "too big to fail" money center banks are Bank of America Corporation (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC). Data for the fourth quarter of 2018 from the Federal Deposit Insurance Corporation (FDIC) suggest that these banks, which control 40% of the assets in the banking system, should not be core holdings in your investment portfolio.

My focus in this analysis is the FDIC Quarterly Banking Profile for the fourth quarter of 2018. I view this data from the Federal Deposit Insurance Corporation as the balance sheet for the U.S. economy. My focus on FDIC data began in 2006 as the housing bubble was inflating. Back then, I warned that there would be 500 bank failures when the bubble began to pop.

We know that the homebuilder stocks peaked in mid-2005, community banks peaked in December 2016 and the regional banks including the money center banks peaked in early 2007. My conclusion since the end of 2007 is that residual issues remain in the banking system, and now new issues are coming into focus.

FDIC Chair Jelena McWilliams reported that the fourth quarter was strong for the banking system. Despite the positives, there remain issues that need to be monitored. McWilliams made the following cautious comments:

"While results this quarter were positive, the extended period of low interest rates and an increasingly competitive lending environment continue to lead some institutions to 'reach for yield.' With the recent flattening of the yield curve, new challenges for institutions in lending and funding may emerge. Furthermore, the competition to attract loan customers remains strong, and therefore, banks need to maintain their underwriting discipline and credit standards."

The following is a scorecard of the key metrics I track:

Scorecard of key FDIC metrics
Federal Deposit Insurance Corporation

The number of FDIC-insured financial institutions fell to 5,406 in the fourth quarter, down from 5,477 in the third quarter. At the end of 2007, there were 8,533 banks. The number of employees in the banking system decreased to 2.067 million in the fourth quarter, down 6.7% since the end of 2007. The banking system should be in growth mode, but it's not. Instead, your personal banker has become a robot, with a computer deciding what you can and cannot do.

Total Assets were reported at $17.94 trillion in the fourth quarter, up 37.6% since the end of 2007.

Residential Mortgages (one- to four-family structures) represent mortgage loans on the books of our nation's banks. Production rose to $2.12 trillion in the fourth quarter, still 5.6% below the pace at the end of 2007. Some banks have reduced staff in their mortgage origination activities.

Nonfarm/Nonresidential Real Estate Loans have expanded throughout the "Great Credit Crunch." This category of real estate lending expanded to a record $1.445 trillion in the fourth quarter, up 49.3% from the end of 2007. This lending is deemed safe, but the banking system now faces the risk of loan defaults related to closing retail stores and malls.

Construction & Development (C&D) Loans represent loans to community developers and homebuilders to finance planned communities. This was the Achilles Heel for community banks and the reason why more than 500 banks were seized by the FDIC bank failure process since the end of 2007. C&D loans had been on the rise to $350.9 billion in the third quarter but slipped to $349.9 billion in the fourth quarter. This loan category is down 44.4% below the level at the end of 2007.

Home Equity Loans represents second lien loans to homeowners who borrow against the equity of their homes. Regional banks typically offer home equity lines of credit (HELOCs), but these loans continue to decline quarter over quarter despite the dramatic rise in home prices. HELOC lending declined another 1.6% in the fourth quarter to $375.7 billion, down 38.2% since the end of 2007.

Total Real Estate Loans had a sequential growth rate of just 0.4% in the fourth quarter to $4.29 trillion, down 3.6% since the end of 2007.

Other Real Estate Owned declined by 6.9% in the fourth quarter to just $6.69 billion as formerly foreclosed properties return to the market. This asset category peaked at $53.2 billion in the third quarter of 2010.

Notional Amount of Derivatives, where many trading risks reside, totaled $178.1 trillion in the fourth quarter, down 15.1% sequentially as banks become more risk-averse. This is still up 7.2% since the end of 2007. 

Deposit Insurance Fund (DIF) represents the dollars available to protect insured deposits. These monies are funded by all FDIC-insured institutions via annual assessments, with the largest banks paying the largest amounts. The fourth quarter DIF balance is $102.6 billion, up 95.8% since the end of 2007.

Insured Deposits rose to $7.5 trillion in the fourth quarter and are up 75.3% since the end of 2007 as savers seek the deposit insurance guarantee of $250,000 available at each bank in which a saver has insured deposits. By the end of September 2020, this fund is mandated to have the fund at 1.35% of insured deposits, and this requirement has already been met.

Reserves for Losses rose slightly to $124.7 billion in the fourth quarter, which is 22% above the level shown at the end of 2007. This is a sign of continued caution in the banking system. 

Noncurrent Loans fell to $100.2 billion in the fourth quarter, 8.8% below the level at the end of 2007.

Here are the weekly charts for the four "too big to fail" money center banks.

Bank of America

Technical chart showing the share price performance of Bank of America Corporation (BAC)
Refinitiv XENITH

The weekly chart for Bank of America is positive but overbought, with the stock above its five-week modified moving average of $28.42 and well above its 200-week simple moving average, or "reversion to the mean," at $22.44. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 86.11, well above the overbought threshold of 80.00. My semiannual and annual value levels are $26.66 and $24.07, respectively, with my monthly and quarterly risky levels at $29.24 and $31.15, respectively.

Citigroup

Technical chart showing the share price performance of Citigroup Inc. (C)
Refinitiv XENITH

The weekly chart for Citi is neutral, with the stock below its five-week modified moving average of $62.43 but above its 200-week simple moving average, or "reversion to the mean," at $59.44. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 81.10, just above the overbought threshold of 80.00. My semiannual and annual value levels are $61.70 and $55.32, respectively, with my monthly and quarterly risky levels at $64.10 and $70.38, respectively.

JPMorgan

Technical chart showing the share price performance of JPMorgan Chase & Co. (JPM)
Refinitiv XENITH

The weekly chart for JPMorgan is neutral, with the stock below its five-week modified moving average of $103.57 but above its 200-week simple moving average, or "reversion to the mean," at $86.08. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 64.18. My annual pivot is $102.64, with my semiannual, monthly and quarterly risky levels at $110.75, $111.89 and $114.59, respectively.

Wells Fargo

Technical chart showing the share price performance of Wells Fargo & Company (WFC)
Refinitiv XENITH

The weekly chart for Wells Fargo is positive, with the stock above its five-week modified moving average of $49.30 but below its 200-week simple moving average, or "reversion to the mean," at $53.18. The 12 x 3 x 3 weekly slow stochastic reading ended last week rising to 59.72. My monthly pivot is $49.14, with my semiannual, quarterly and annual risky levels at $51.12, $51.44 and $63.29, respectively.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.