Banks Face Capital Punishment

"Assuming Countrywide reserves 2.5% of its loans for losses -- up from 1.86% at Sept. 30 -- and writes off $304 million of foreclosed assets in its bank and $1 billion of subprime and prime home-equity residual interests ... its excess capital falls to $3.8 billion," she continued.

All's Not Golden at Wachovia

Another company that could run into trouble with its capital levels is Wachovia, due to its acquisition of California mortgage lender Golden West, the holding company of World Savings Bank. The lender, acquired in 2006, is best known for originating Option ARMs.

Wachovia's Tier 1 capital was 7.5% at the end of the third quarter, but the Charlotte, N.C., lender acknowledged at an investor conference hosted by Goldman Sachs last week that its $7 billion capital cushion was falling. Chairman and CEO Ken Thompson said Wachovia "will not hesitate" to raise capital should the need arise.

The company says it has "ample" earnings to continue to support growth and build credit reserves at the same time, despite the market deterioration. Management remains confident of its dividend "even under stress scenarios," according to a presentation at the conference.

Wachovia also has boosted its fourth-quarter provision to a range of $500 million to $600 million, up from the $408 million it set aside for the third quarter.

Ed Najarian, an analyst at Merrill Lynch, earlier this month downgraded Wachovia to sell, partly over concerns that the company's credit losses will rise "significantly" next year.