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Trepp Releases Updated Capital Adequacy Stress Test Report

Trepp, LLC, the leading provider of information, analytics and technology to the commercial real estate and banking markets, today released its Trepp Capital Adequacy Stress Test Report (T-CAST) of U.S. banks. Applying the T-CAST model and current regulatory proposals to more than 6,000 banks, a total of 747, or one in eight institutions, failed the stress test without raising additional capital.

Using third quarter 2012 data, the percentage of banks that failed the T-CAST under a severely adverse economic scenario shrank by seven tenths of a percentage point to 12%. The failure rate is a slight improvement from the Q2 2012 T-CAST, where 12.7%, or 784 of the banks tested, failed. The slight improvement from last quarter’s T-CAST is a result of a few factors. First, the banks have had another quarter of retained earnings under their belt, further boosting capital and improving their starting point. Second, the official inputs that were formally released by the regulators in mid-November were not quite as onerous as Trepp predicted–especially for the Severely Adverse Scenario.

The test results revealed that while banks with over $10 billion in assets were the only category to experience a net gain of banks that failed T-CAST, this segment continued to outperform others. In this category, six of the 81 banks (7.4%) failed the test. Smaller banks’ capital ratios have eroded, and while there was some improvement in the number of banks that passed this quarter, a significant percentage (12.3%) of banks with under $1 billion in assets failed. On a state level, results were varied. Thirty-two states experienced a change of more than 1% in their T-CAST fail rate from second quarter 2012 results. Twenty of those states experienced a decline, while 12 saw an increase. States that cause the greatest concern are those with the highest rate of bank closures, although conditions have improved since last quarter.

“While conditions in these states have improved, the high T-CAST failure rates indicate that more progress in capital raising and balance sheet healing is needed before these areas fully emerge from the recent failure cycle,” said Trepp’s Managing Director Matt Anderson.

Trepp developed the T-CAST model in direct response to the requirements of the Dodd-Frank financial reform legislation. The model was created to forecast bank earnings, capital, and assets based upon the framework and macroeconomic scenarios. Using bank call report data, 12 macroeconomic variables officially released by regulators in November 2012, and proprietary algorithms, the T-CAST model produces results for Baseline, Adverse and Severely Adverse Scenarios.

For a copy of the full report, download it at

About Trepp, LLC

Trepp, LLC, founded in 1979, is the leading provider of information, analytics and technology to the CMBS, commercial real estate and banking markets. Trepp provides primary and secondary market participants with the web-based tools and insight they need to increase their operational efficiencies, information transparency and investment performance. From its offices in New York, San Francisco and London, Trepp serves its clients with products and services to support trading, research, risk management, surveillance and portfolio management. Trepp is wholly-owned by DMG Information, the information publishing division of the Daily Mail and General Trust (DMGT). For more information, visit

About Trepp Bank Navigator™

Trepp’s Bank Navigator is a comprehensive web-based financial institution surveillance and risk management system. With detailed financial reports, risk scores and rankings on nearly 12,000 commercial banks, thrifts and bank holding companies, Bank Navigator is a useful tool for those concerned with bank financial performance and risk. The Bank Navigator is also a practical solution for developing successful enterprise risk management (ERM) programs.

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