Strong Banks Still Exist Despite Turmoil

NEW YORK (TheStreet) -- Lehman Brothers and Bear Stearns have disappeared, the U.S. government has gotten into the banking business, Bank of America's (Stock Quote: BAC) Ken Lewis has crumbled under pressure, and global banks still have more than a trillion dollars in toxic assets to write down.

So what else is new?

Well, more than 1,100 U.S. banks and savings-and-loan institutions have been assigned financial-strength ratings of at least B-plus by TheStreet.com Ratings, which equates to "recommended." Yes there are still many strong institutions out there.

Still, 29 of 8,200 banks and thrifts received A-plus financial-strength ratings in the second quarter, down from 32 three months earlier, according to a complete review by TheStreet.com Ratings. A total of 583 institutions got ratings of A-minus (excellent) or better, and 1,100 were awarded B-plus or higher. To be sure, that was a decline from 1,175 in the previous quarter.

The most important factors in determining those ratings are strong capital levels, consistent profitability and good loan quality.

The institutions rated A-plus had capital ratios greatly exceeding the 5% tier 1 leverage ratio and 10% total risk-based capital ratio required for most banks and thrifts to be considered "well-capitalized" under regulatory guidelines.

The A-plus list is dominated by community banks, which need to build close relationships with local business customers to make profitable loans while also attracting low-cost checking deposits. Knowing the customer plays a major role in maintaining credit quality.

Without regulatory reform, the largest banks, including Bank of America, JPMorgan Chase (Stock Quote: JPM), Citigroup (Stock Quote: C) and Wells Fargo (Stock Quote: WFC)  will continue to enjoy the competitive advantage of the "too big to fail" label. After all, the government owns a significant stake in three of the big four.

However, judging from the long-term conservative ratings model used by TheStreet.com Ratings, well-run community banks will still be able to compete.