Smaller Banks Fail Stress Test, Need $24 Billion

The FT commissioned research looking at whether the country’s next-largest 200 banks need more money.  Answer?  Yes.  $16 billion more. 

And the remaining 7,700 need $8 billion.

The paper concludes that 500 more banks will close.

FT: Small and medium-sized US banks must raise some $24bn to meet the capital standards set by the government in its stress tests of large institutions, research for the Financial Times shows.

News of the potential capital shortfall could increase pressure on many of the 7,900 US banks that form the backbone of the US financial system.

As many as 500 more banks could close, according to investment bank Sandler O’Neill, which carried out the research.

Since this month’s release of the tests for the 19 largest banks, regulators and investors have increased their focus on the next tier of lenders, amid concerns some of them might struggle to survive if the economy worsens.

The government’s stress-case would result in capital shortfalls for 38 per cent of the 200 banks below the 19 largest financial institutions, leading to a deficit of around $16.2bn in common equity, according to Sandler O’Neill.

Applying similar criteria to the remaining 7,700 banks in the US would result in a further $7.8bn capital deficit.

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