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Thursday, June 26, 2008

Small Banks: How Fragile Are They? by Ben Steverman FROM BusinessWeek

A toxic brew of bad bets on ultra-risky debt, a weak economy, and plunging home prices could soon leave some U.S. banks short of the cash they need to stay afloat. Adding to their worries is a sense that it's getting harder and harder for institutions to raise funds.

As a result, concerns are rising that the U.S. could see a wave of bank failures in the next year. While big banks, starting with giants such as Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) grab headlines, their financial standing is reasonably secure. It's the smaller banks that are in most danger, experts say.

Of about 8,500 banking institutions in the U.S., the most vulnerable are local banks in areas hard hit by the real estate slowdown, especially Florida, Arizona, Nevada, and California. And the most endangered of those specialized in real estate lending, with home-equity loans and loans to developers providing the most pain.

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