Less Capital, Fewer Problems?

Capital. It is first in the CAMELS (capital, assets, management capability, earnings, liquidity, and sensitivity) acronym and often first in many community bankers’ hearts. Its place of prominence within community bank balance sheets is due to how critical it can be to surviving problems created by asset quality, its neighbor in the acronym. Many community banks often carry excess levels of capital according to Wall Street’s standards, but that is because it sometimes may be harder to raise on Main Street when it is most needed. When a community bank has problems quickly selling its stock to interested shareholders, the bank’s best contingency plan for surviving a recession may be to pass the hat around the board table. Realizing this, prudent board members are often reluctant to test the lower boundaries of regulatory capital expectations.