After conducting stress and sustainability tests on hundreds of U.S. banks, Invictus Consulting Group found 758 American banks are at risk of failing.
The research and analysis firm said without corrective action or plans to merge and raise capital, it’s unlikely these 758 banks insured by the Federal Insurance Deposit Corp. will remain solvent over the long-term. In fact, failures could begin occurring within the next two years.
Invictus blames the weak financial recovery and a new wave of potential loan defaults for putting more American banks at risk.
Institutions on the warning list have total assets of approximately $440 billion.
Since the start of the financial crisis, hundreds of U.S. banks have failed. In just the past three years, 389 banks and thrifts failed, including 92 in 2011, according to FDIC data. The regulator had 844 banks on its problem list at the end of the third quarter.
“While any possibility of a bank failure is serious, what makes this situation even more dire is that the demise of any of these banks would adversely affect their local communities, especially smaller business people and those seeking to buy or improve their homes,” said Kamal Mustafa, chairman and CEO of Invictus.
“Compounding the problem is the fact that larger national banks are starting to close down their smaller branches, so these communities will have even fewer lending resources,” Mustafa said.
Florida is the most exposed with 72 banks at risk, followed by Illinois (69), Georgia (66), Minnesota (37), Missouri (33) and Tennessee (31). The states with no extremely at-risk banks are Alaska, Hawaii, New Hampshire and South Dakota.
“Borrowers will simply run out of time and resources,” Mustafa said. “The banks earnings will be insufficient to sustain capital and many banks will be unable to raise enough capital. We believe there needs to be significant capital-raising for those that can, or they must engage in mergers and acquisitions.”
Write to Kerri Panchuk.