Its Not Just Big Banks . . . Some Small Banks in Trouble Also

Washington’s Blog
Tuesday, May 26, 2009

The Wall Street Journal recently conducted its own “stress tests” on small and medium sized banks. The Journal used the same mild assumptions as used by the Fed for larger banks.

The Journal concluded that 600 small and midsize banks could see their capital disappear.

CNN also writes that many smaller banks are becoming zombies:

Many experts wonder how so many small regional and community lenders that are capital starved and overwhelmed by escalating loan losses are able to stay in business…

In metropolitan Atlanta and the state of Florida, for example, more than 50 banks reported non-performing asset levels of 10% or more of total assets as of the end of March, according to the Raleigh, N.C.-based investment bank Carson Medlin… In more normal economic times, non-performing asset levels remain below 1%.

Up to this point, small lenders, which serve as the primary source of credit for large parts of the country, were considered a picture of health in the banking industry. Most avoided the toxic mortgage products that ruined so many of their big bank peers … But the outlook for this corner of the nation’s banking industry has been tempered in recent weeks as small lenders endure rising losses, partly as a result of exposure to areas like commercial real estate and small business loans.

CNN correctly notes:

Next Wednesday, Wall Street will get a clearer sense of what kind of shape the industry is in when the Federal Deposit Insurance Corp. publishes its first-quarter assessment of the industry. One closely-watched part of that report is the agency’s so-called “problem bank” list.

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