Number of Undercapitalized Banks Falls to Pre-Crisis Levels

The number of undercapitalized banks fell to pre-crisis levels and the number of problem banks experienced a dramatic decline in 2013, according to research from SNL Financial

The number of undercapitalized banks dwindled throughout the past year and not necessarily through failures, which was the case during 2011 and 2012, said SNL, as more banks found their ways out of trouble through positive means in 2013 even if true success stories are still not commonplace for most troubled banks.

"Raising capital today is still difficult for a weaker institution, but with the economy improving, banks looking to raise funds, particularly institutions with some scale, can often find an audience with investors," the report states.

Twenty-four banks and thrifts were undercapitalized, based on the criteria of having Tier 1 ratios below 4 percent, as of Dec. 31, compared to 23 institutions at the end of the third quarter and 44 institutions a year ago, according to SNL data.

The current number of undercapitalized institutions is at the lowest level since the third quarter of 2008, when 14 banks were considered undercapitalized, and far below the levels seen three years ago, when 93 banks were considered undercapitalized, according to SNL. Failures were the main contributor to the decrease in undercapitalized institutions in 2011 and 2012.

According to SNL data, the trend was more positive in 2013, when 16 banks, including five in the fourth quarter, found their way out of undercapitalized territory without failing or closing their doors. Just 24 banks failed in 2013, with only two banks failed in the fourth quarter.

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Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio