The drop in U.S. stocks today came about from an announcement by Rochdale Securities analyst Richard Bove that the underlying fundamentals in the banking and financial industry really haven’t improved at all.

A plunge in the inventory of wholesalers also contributed to the overall stock market weakness today, as it was an unexpected event, whereby it was close to twice the amount of what was expected. This implies wholesalers aren’t convinced demand has picked up.

Even though bank stocks have been moving upwards recently, much of that is because of low interest rates and increased overdraft fees.

As Keith Springer, president of Capital Financial Advisory Services in Sacramento, California, said, “Bank (shares) have been rallying because low interest rates have helped them make money,. But the deleveraging process is removing tens of billions from the economy. We’re going to see a lot more defaults.”

The truth at this time in th banking and financial industry is there is no way of knowing how deep the problems really are, as potentially destructive loans and securities are still a huge threat to the institutions, and we won’t know how badly until an event occurs.

So the daily ups and down and government spin we hear from their overly cooperative media outlets has to be pretty much ignored, as they have no idea, and neither do most of the so-called experts, of what could or might happen.

The Congressional Oversight Panel issued a report agreeing with my assessment saying that these types of loans and securities continue to pose a significant threat to the overall financial system. While they said this is especially true with smaller banks, in reality, what did the bailouts of the larger banks happen for if that was really true? The only reason some large banks are still around is because of the ill-advised bailout by the U.S. government using taxpayers dollars.

Even so, the threat is very real, but I would say it’s a threat to global, regional and small banks alike. The one thing that is a more serious threat to smaller banks is what will happen if more of their commercial real estate loans start to default.

Today’s results included The S&P Regional Banks sub-index .GSPBNKS being down by 4.4 percent, and the KBW Bank Index .BKX was off by 4.5 percent. S&P 500’s .GSPF fell by 3.3 percent.