By Dan Freed

When you're "too big to fail," you're also too big to make good credit decisions, judging from third-quarter data published last week by Keefe Bruyette & Woods.

KBW covers more than 200 U.S. banks, but the four too-big-to-fail lenders, Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) collectively showed up on "10 worst" lists in 23 different categories, while appearing on "10 best" lists just twice.

JPMorgan, for example, showed the third-highest rate of credit deterioration, with a 2.2% increase in net new problem loans in the third quarter versus the second. While only 0.4% of its new loans are classified as problematic -- generally meaning they are more than 90 days delinquent, had to be restructured, or have been written off entirely -- more than 200 banks somehow managed to do better.

Consumer and residential loans were a particular problem for JPMorgan and other TBTF lenders as well -- not surprising, since big lenders are presumably better at analyzing, understanding and perhaps muscling companies than they are at dealing with individuals.

JPMorgan has the second-highest ratio of non-performing one to four family loans at 14.18% --up from 13.09% in the second quarter and 11.85% in the third quarter of 2011. All four of the TBTF banks made the top 10 list for non-performing home equity loans. The worst of the big four in this category was Citigroup, with 4.35% of its home equity loans classified as non-performing, up from 4.02% in the second quarter and 2.28% in the third quarter of last year.

While credit is improving overall in the banking industry, and some of these bad numbers may be the result of acquisitions of troubled institutions, the data still serves as a reminder that mass-produced products -- whether clothes, furniture, or -- yes, even loans -- are often lower in quality than those that are the result of a more careful process involving a greater degree of individual attention.

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