Number of Undercapitalized Banks Falling

The number of undercapitalized banks in the U.S. has fallen during the third quarter of 2012, according to new research from Charlottesville, Va.-based SNL Financial. However, the failures of struggling banks is largely the reason behind the decline, the research firm said.

Forty-two banks and thrifts were undercapitalized, based on the criteria of having Tier 1 ratios below 4 percent, as of Sept. 30, compared to 54 institutions at the end of the second quarter and 72 institutions a year ago, according to SNL data. With the decline in the third quarter, the number of undercapitalized institutions has fallen to the lowest level since the first quarter of 2009, the firm said.

Further, the number of undercapitalized banks in the industry has steadily declined for the last eight quarters; however failures of struggling banks have been largely responsible for the declines rather than banks finding their way out of trouble through other means, said the firm.

Georgia and Florida were the states tied for the most operating, undercapitalized institutions, with five banks falling below the 4 percent Tier 1 risk-based capital threshold at Sept. 30. Tennessee has the third-most operating undercapitalized institutions as of Sept. 30, with three banks falling below the threshold.

SNL also reported that the overall pace of resolutions has slowed dramatically in the last two years. Ninety-two banks failed in 2011 after 157 saw their doors closed in 2010. The pace of failures has slowed even more considerably in 2012, with 50 banks failing this year, according to SNL data.

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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