A Capital Dilemma

It’s a tough time for community banks to raise capital – and the regulators aren’t making it any easier.

By Robert Stowe England
Banking Strategies Magazine
January 1, 2010

For community banks scrambling to raise capital, the propensity of federal regulators to raise the goal posts in the middle of the game makes the task increasingly onerous.

Case in point is Normal-based Bank of Illinois, a two-branch community bank with $235 million in assets which, back in May 2009, possessed a risk-based capital ratio of just over 10%, just above the regulatory requirement for a well-capitalized bank. This ratio, established in guidelines from the Federal Reserve, is the ratio of total risk-adjusted capital (tier one and tier two) to risk-adjusted assets.

Then, in May, a joint visit by the Illinois state bank regulatory agency and the Federal Reserve came with a demand that the Bank of Illinois increase its loan-loss reserve to cover potential losses on commercial real estate, which dropped the risk-based capital ratio below 10%, according to President Larry Maschhoff.

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