A billion here, a billion there, pretty soon it adds up to real money. The late Senator Everett Dirksen’s quip seems particularly apt as three of the world’s biggest banks line up to issue profit warnings. Citigroup is literally making write-offs in dollops of a billion dollars or more. Losses on unsellable loans to leveraged buyouts are $1.4 billion (£680 million) Sub-prime mortgage losses amount to $1.3 billion. Defaulting credit card borrowers a staggering $2.6 billion.

Even for the world’s biggest bank, these are large numbers. Put another way, each and every day for the past three months, Citigroup has been confronted with the sobering fact that another $65 million of its loans wasn’t going to be paid back.

UBS, despite its proclaimed new transparency, is not quite so plain-speaking, but the overall bill is something like four billion Swiss francs (£1.6 billion), while Credit Suisse is going to report third-quarter profits a billion Swiss francs shy of expectations.

The relief of two weeks ago, when some of Wall Street’s finest, including Goldman Sachs and Lehman Brothers, reported pretty resilient third-quarter figures, has proved premature. It is partly a timing thing: the third quarter of the latest casualties includes the grisly month of September. It is partly a size thing. Citigroup and UBS are big commercial banks, as well as investment banks, with far larger balance sheets. Bluntly, they took bigger bets with their own capital and then compounded the sin by being slower to sell on the securities to other people.

It’s partly about internal politics. Marcel Rohner, the new broom at UBS, doubtless will have been tempted to “kitchen sink” the accounts, since the worst of the red ink can be laid at the door of his predecessor, the ousted Peter Wuffli.

But there also appear to have been internal failings – in hedging strategies, in credit assessment and in proprietary trading. Both Citigroup and UBS put in place some insurance against deteriorating conditions in the sub-prime market. This wasn’t rocket science: the skies above the trailer parks of America had been darkening for months. But in both cases, the hedging was not sufficient. As UBS put it, the offsetting arrangements were designed only to mitigate risk “in normal market conditions”.

The banks appear to have been guilty of taking out insurance for a dislodged tile but failing to buy any cover against a hurricane taking away the entire roof.

Their risk analysts and prop traders have been wrongfooted by the events of the summer. Citi calls the problem “a breakdown in pricing relationships”. UBS gives no explanation for its losses in equity trading. Banks have been devoting ever greater sums to prop trading and putting too much faith in computer-driven strategies. A generation of traders has been brought up to identify patterns in the relative prices of securities and trade on the basis that they would continue. Year after year, the same patterns came up. This summer, they didn’t.

Banks need to be much more pessimistic in the assumptions they use to stress-test their models. Value at risk calculations should be treated with the contempt any fig leaf deserves. And anyone claiming that this or that was “a one in 1,000-year event” needs to be sent back to statistics class.

Chuck Prince, Citigroup’s chief executive, yesterday played down the poor trading performance in the fixed-income division as “an aberration”, which suggests that even today the lesson has not been fully learnt. Mistakes, men learn from; aberrations, they’re likely to encounter again.

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