Bank Stocks - Bargain Opportunity or Bear Trap?

There is a lot of talk right now on Wall Street about exposure to sub-prime borrowers. These are individuals who have loans that they cannot really afford. Maybe they bought a home that was far to expensive using an adjustable rate mortgage, perhaps they are experiencing negative amortization where, despite their monthly payments, the principal balance of their loan actually increases each month.

Does the recent drop in bank stock prices represent a buying opportunity or a bear trap? To get to the bottom of the question, we have to take a look at reserve accounting ...