May 26, 2009

Maybe the so-called "zombie" banks didn't die after all.As recently as two months ago, many on Wall Street speculated that the nation's largest financial institutions -- banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) -- were only operating as a result of extensive aid from the U.S. government.Now, many experts wonder how so many small regional and community lenders that are capital starved and overwhelmed by escalating loan losses are able to stay in business.

In metropolitan Atlanta and the state of Florida, for example, more than 50 banks reported non-performing asset levels of 10% or more of total assets as of the end of March, according to the Raleigh, N.C.-based investment bank Carson Medlin.Non-performing assets are loans that are not collecting interest or principal payments. In more normal economic times, non-performing asset levels remain below 1%.Up to this point, small lenders, which serve as the primary source of credit for large parts of the country, were considered a picture of health in the banking industry.