Big banks, in general, seem to be doing very well;
Small- and medium-sized banks, in general, are not doing so good.
This presents quite a dilemma for the Federal Reserve. The bailouts of the big banks have seemingly worked. The big banks were saved from the systemic risk that existed within the financial system (yes, Mr. Goldman Sachs (GS), you too would have failed if we had done nothing—Tim Geithner) and are now doing quite well. The Fed’s policy of keeping short term interest rates close to zero seems to be lining the coffers of these banks in record amounts.
The small- and medium-sized banks are another issue. These organizations, on average, do not seem to be making profits yet. Their loan losses really seem to be piling up and more is going to be asked of them in terms of reserves in anticipation of further losses. External capital does not seem to be readily available to them. And, they have more than 25% of their assets in cash and securities to help them through this period and to be able to pay off their own debt as it matures.
The Federal Reserve must take the condition of these smaller banks into consideration when considering a way to “exit” from its bloated balance sheet. Too quick of an exit could just exacerbate a situation that is already taxing the resources of these institutions.