Small Banks and Trust Preferred Securities What?

I came across a very interesting article in the Wall Street Journal the other day "Small Banks Hit Snag As They Raise Cash", by Robin Sidel. This is what made my eyeballs pop: From 2000 to 2008, more than 1,500 small and regional banks issued about $50 billion in trust preferred securities, according to Red Pine Advisors LLC, a New York firm that helps small banks value illiquid investments. The banks favored the securities, a mixture of debt and equity, because they could be counted as capital for regulatory purposes. That gave the banks firmer footing to lend and boost earnings.

Many of the trust preferred securities were placed into pools of collateralized debt obligations. Ratings downgrades have battered the value of many trust preferred securities, which trade infrequently. "For many banks, raising capital is contingent on the extinguishment of the trust preferred securities, " said Brad Larson managing director at Hexagon Securities LLC, a New York Firm that advises small banks on the problem and is affiliated with Red Pine. " A long list of banks is likely to fail if their capital- raising efforts are unsuccessful."

The Consumer and Main Street especially small business owners need to understand the impact of the residue of the meltdown and keep the pressure on.