NEW YORK CITY-Only banks of $10 billion or more in assets arerequired to undergo so-called “stress tests” in response toDodd-Frank requirements. Yet it’s at the smallerend of the size spectrum that the pressure on balance sheets andincome statements would be greater, and a TreppLCC report released Tuesday found that one in eight USlenders would fail such a test of capital adequacy. The percentageis far higher among institutions of less than $10 billion—upward of12.9% for lenders with $1 billion or less, compared to 5.4% forthose with more than $10 billion in assets.

It’s likely that the percentages would be higher had the locallybased CMBS information provider conducted its test a few years ago,Matt Anderson, Trepp’s lead bank analyst, tellsGlobeSt.com, although how much higher is difficult to determine.“Since 2007, banks in aggregate have raised $370 billion of freshequity, adding to the capital cushion the banks currently have,” hesays. Loan performance has also improved, with the result that thebalance of delinquent and defaulted loans has gone down, althoughdelinquency levels are still far from normal.

Yet 12.7% is still a large number of at-risk banks—nearly800—when you consider that the total number of institutions inTrepp’s study was 6,151. Among those that failed the test on 12macroeconomic variables, Trepp estimates that as much as $27billion of additional capital would be required in aggregate toachieve a passing grade, comparable to 30.9% of their current Tier1 Capital. Moreover, should another recession come to pass, it’sreasonable to expect that the number of at-risk banks wouldclimb.