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Is your bank ‘underwater’? Check its debt level's Bill Dedman reports.

More U.S. banks have moved into deep water, loaded down by troubled loans on real estate, according to a new analysis by and the at American University in Washington.

At the end of 2007, only 10 banks had more troubled loans than capital and reserves. That number rose to 77 by June 2008, then nearly doubled to 144 at the end of 2008. It reached 237 at the end of the first quarter of 2009. And now stands at 297 at the end of the second quarter. Still, that's only 3.6 percent of all 8,204 banks insured by the Deposit Insurance Corp.

Here are three ways to check the health of your bank:

  • See how much bad debt the nation's are carrying.
  • Check a list of .
  • Look up any bank by name on the updated site from American University.

The analysis relies on information reported through June 30 by banks to the FDIC. American University calculated each bank's troubled asset ratio, which compares troubled loans against the bank's capital and loan loss reserves. Troubled assets include loans that are 90 days or more past dues, loans on which the bank is no longer collecting interest and real estate that the bank already owns, usually through foreclosure. A similar ratio, known as a Texas Ratio, is commonly used by bank analysts as a snapshot of a bank's financial health, though it can't capture all the nuances of a bank's condition.

Concentrated in a few states
The ratio shows the increasing pressure that the recession and bad loans, particularly on real estate, have placed on the nation's banks.

A bank with more troubled loans than money to cover potential losses has a troubled asset ratio greater than 100. The highest share of banks with ratios over 100 were in Puerto Rico, where 30 percent of banks were in that situation, followed by Nevada, 17.9 percent; Georgia, 17.6; Arizona, 17.5; Washington, D.C., 16.7; Florida, 15; Utah, 13.8; Washington, 13.5; and Oregon, 13.2. At the other extreme, 16 states have no banks in such straits.

In terms of raw numbers of banks in that situation, the states with the most were Georgia, 57 banks; Florida, 45; Illinois, 35; California, 18; Minnesota, 18; Washington, 13; Missouri, 11; Arizona, 10; and Utah, 9.

Depositors are protectedThe American Bankers Association opposes the sharing of ratios like these with the public, and cautions that a heavy debt load does not ensure that a bank will fail. The FDIC has said its "problem list" of troubled banks rose to 416 at the end of June, but that list is secret, and there's no way to know how much it overlaps with our list of banks with high levels of troubled loans.

While the troubled asset ratio is not a predictor of bank failure, 84 of the 92 banks that have failed so far this year had ratios greater than 100 percent in their last quarter, American University reported.

Even when a bank does fail, no depositor has lost a dime in insured deposits since the FDIC was created in 1934.

The protection has its limits. The basic limit had been $100,000 per depositor per bank, but has been increased to $250,000 through Dec. 31, 2013. The FDIC has and a to help you determine your level of protection.

In short, the advice boils down to this: If your deposits are under the FDIC limits, you're protected even if your bank should fail. If your deposits exceed those limits, the best protection is to move deposits now into smaller accounts at more than one FDIC-insured bank.

Largest banks with heavy debt loads
Seven of the 100 largest banks in the U.S. had very high levels of bad loans at the end of the second quarter. They were:

    Some analysts have said that a troubled asset ratio over 20 percent is an early warning sign. An additional 250 banks moved past that level during the second quarter, for a total of 2,942. That's 3.6 percent of the nation's banks.

    Among all banks, the total of troubled assets at all banks reached more than $323 billion at the end of  June, up from $237 billion six months ago, and $170 billion a year ago. More details of the overall pattern are in the American University report.

    Along the same lines, the national median for the troubled asset ratio continued to rise: 5.7 at the end of 2007, 9.9 at the end of 2008, 11.7 at the end of this year's first quarter, and then 13.0 at the end of the second quarter.

    Limitations of the ratio
    The ratio was devised by Wendell Cochran, senior editor of the Investigative Reporting Workshop at American University. A former business reporter, Cochran may have been the first journalist to create this measure of bank health. He did that while covering banking for the Des Moines Register in the early 1980s. Cochran now teaches journalism at American University.

    Others do similar calculations. The most widely used is the so-called Texas Ratio, created in the 1980s by a banking consultant.

    The troubled asset ratio may not accurately reflect a bank's standing today. As with any annual or quarterly report, there's a lag time before the numbers are reported, and the figures don't reflect changes since June 30.

    The reports in most cases do not include the billions in federal money injected onto the balance sheets of bank holding companies in the form of so-called TARP funds.

    The ratio does not include the value of non-loan assets that have caused so much trouble in the past year, particularly for some larger banks that moved away from traditional commercial banking. Nor does it reflect mortgage-backed securities, collateralized debt obligations, etc. In this way, the ratio may underestimate the real depth of problems at some banks.

    And no ratio can get at the detailed information — such as the individual loan files, quality of management, and potential for raising other capital — that a regulator would use to evaluate a bank's safety and soundness.