The banks in the news are the big ones, C BAC JPM etc. I recently looked at some data for various small cap banks. Loan loss reserves, chargeoffs, composition of assets, capital ratio, etc. I am not a banks expert so take this with a pound of salt. But this is what I think I saw. The typical small cap bank has loan loss reserves equal to a year or two of current chargeoffs, meaning if their loans and investment securities keep going bad at the current rate they will have to raise their reserves in a couple quarters to a year and a half. Most of them are not terribly far from minimum capital levels, so would probably have to raise more capital in that event. About half of their assets are C&I and CRE loans, maybe a tenth to a fifth is investment securities. Default rates on C&I and CRE has been rising rapidly but is still well below the peaks of 1991. Implies chargeoffs will continue and, my guess, accelerate which could accelerate the need for additional capital. Most of these banks are cut off from equity capital at this point. The TARP money helped many of them rebuild their loss reserves and capital ratios, but that was a one time help. Bottomline, to my non-expert eyes it looks like many of these small cap banks will go below minimum capital ratios and be forced to close or be fire-sold. None of them are "too big to fail".
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