Banks Across America Bleed More Capital
By Philip van Doorn 11/11/09 - 09:11 AM EST Loading
NEW YORK (TheStreet) -- There are hundreds of small banks scattered across America that are buckling under the burden of rising loan defaults and investment losses. As a result, bank failures will accelerate into next year.
At the same time, it's clear that the country's largest banks, including three that haven't begun to repay government money received the Troubled Asset Relief Program, namely Bank of America(BAC Quote), Citigroup(C Quote) and Wells Fargo(WFC Quote), are going to safely navigate the credit crisis.
The ranks of undercapitalized banks swelled last quarter even though 30 banks and thrifts on the previous list had failed, including five last Friday.
Most banks and savings and loans need to maintain tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% to be considered well-capitalized under regulatory guidelines, although some trust banks have much lower capital requirements. The ratios need to be at least 4%, 4% and 8% for most to be considered adequately capitalized.
Most undercapitalized banks have taken radical steps to preserve capital, including cutting expenses, laying off workers and suspending dividends. Most are trying to raise capital from outside investors, and many are merging with other institutions. However, with the Federal Deposit Insurance Corp. providing generous loss-sharing guarantees for acquirers of failed institutions, it's hard for smaller banks and thrifts to raise money.
The underlying regulatory data for the list of undercapitalized banks is subject to revision, as banks and thrifts have up to three months to restate financial information. The list also doesn't include the roughly 400 institutions that haven't yet failed their third-quarter bank-call reports or thrift financial reports. Another thing to consider is that a bank or S&L on the list may have raised capital since June. The list is sorted by state in ascending order by total risk-based capital ratio.
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