Twenty-five percent of all U.S. banks do not meet the minimum risk-based 8% Tier 1 capital requirement, according to a two-year stress test completed by financial risk management firm Invictus Group. The result is a situation where the firm says one-fifth of U.S. banks would be undercapitalized on a post-stress test basis in times of emergency. The states of Arizona, Florida and Maryland have the most risk with more than 50% of banks at risk, Invictus said. When looking at lending assets at banks, one third of all assets are within banks that are considered undercapitalized. The tests shows 1,983 out of 7,695 banks would be challenged capital-wise in times of stress. Arizona banks performed the worst with 53% of the state's banks undercapitalized, while Illinois has the largest number of assets — about $100 billion — residing on the balance sheets of undercapitalized banks. Invictus has been working with regulators on the study and plans to provide the data to regulators, bank boards and executives. Write to Kerri Panchuk.