7 Signs American Banks are Safe and Sound

Stocks slipped into bear-market territory Tuesday amid increasing anxiety that the Greek debt debacle will blow up the global financial system the same way Lehman Brothers did three years ago. Naturally, bank stocks are bearing the brunt of the panic.

But well regarded (and sometimes maligned) bank analyst Richard X. Bove says the market's hysteria over the health of the banking sector is totally overblown.

"The American banking industry is not going to fail or be nationalized," Bove writes in a Tuesday note to clients. "These stocks are representing hysteria not reality."

Bove, of Rochdale Securities, offers seven reasons why American banks won't blow up anytime soon:

1. Banks do not fund themselves in either the CDS [collateralized debt security] market or, now, the equity markets. They are funded primarily with deposits and deposits are rising.
2. Bank balance sheets are stronger than they have been for decades when viewed from a capital and liquidity standpoint.
3. There are a number of government and private auditors looking at these companies daily suggesting that their assets are being valued correctly.
4. There are only five banks in the U.S. with meaningful exposure to Europe and these banks believe that they have reduced their risks through hedging over the past 18 months.
5. While a recession is a distinct possibility banks have high reserves relative to history suggesting that the impact of the downturn will be less severe than what was experienced in 2008/2009.
6. Housing values have been stabilizing in the past three months. Moreover, a house provides its user with a utilitarian value it is not just an investment.
7. The vast majority of banks will report up earnings in the third and fourth quarters. The capital markets companies will not report losses.

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