Further Movement on "Viability"

March 16, 2009

Authored by: Robert Klingler

While the Treasury and federal banking regulators have uniformly and consistently stated that the TARP Capital Purchase Program was only intended for “viable” banks, what constitutes viability has steadily become a higher standard.  (As we’ve previously noted, many of the original TARP Capital Purchase Program recipients would not qualify as the Treasury tightened its standards on viability.)

We are now hearing from multiple sources that for a bank to be deemed viable and eligible to receive TARP Capital Purchase Program funds the maximum acceptable level of non-performing assets is 40% of Tier 1 Capital plus Allowance for Loan and Lease Losses (down from 75% or more previously).  While the Treasury still appears to be concerned with commercial real estate concentrations, this non-performing asset test appears to have taken center stage.

As of December 31, 2008, only 31 of 103 banks in metro Atlanta were below 40% in non-performing assets to Tier Capital plus ALLL (and only 12 more were at or below 50%).  As a result, a lot of good banks may be looking for alternatives to the TARP Capital Purchase Program.  The tightening of viability standards, while certainly a negative for the prospects of any bank receiving TARP Capital funds, should make it easier for non-recipients to answer inquiries as to why they did not receive the funds.