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More Banks Fall Short of Capital Mandates

Stocks in this article: JPM FITB USB

NEW YORK ( TheStreet) -- Three times as many U.S. banks and thrifts are undercapitalized compared to last year as the industry struggles to recover from the credit crisis.

Earlier this month, preliminary data from SNL Financial indicated that capital levels at 108 banks had fallen short of regulatory requirements as of June 30. Now that complete second-quarter data is available, that list has grown to 116. Only 30 banks were undercapitalized a year earlier.

Almost a year after Washington Mutual became the biggest bank failure in U.S. history, the nation's banks and thrifts continue to wrestle with troubled loans on their balance sheets. The Federal Deposit Insurance Corporation said yesterday that its "problem list" of banks had expanded to 416 from 305 the previous quarter.

Undercapitalized banks are more likely to fail than those that meet regulatory requirements. To stay afloat, these banks must suspend dividends and raise capital, through their current investors or private equity, or arrange asset sales or mergers with stronger institutions.

Most banks and S&Ls 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. The ratios need to be at least 4%, 4% and 8% for most to be considered adequately capitalized.

A previous list of undercapitalized banks and thrifts wasn't complete, because a full set of second quarter data wasn't yet available. The updated list, based on data from SNL Financial, excludes the 12 institutions that have failed since the previous list was published.

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