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With Citigroup Inc.'s (C) dramatic effort to boost its tangible common equity Friday, this once-obscure measure of a bank's capital is now clearly in the spotlight.

By one analyst's stress test scenario, some other banks also don't have enough tangible common equity.

Tangible common equity measures the portion of a bank's assets that common shareholders actually own after subtracting debt, and excluding intangible assets like brand names and goodwill. U.S. regulators have begun "stress testing" the 19 largest banks by assets; it isn't known whether they will be looking at tangible common equity in those tests.

But Barclays analyst Jason Goldberg, making the interesting but not inevitable assumption that tangible common equity would be a consideration in the government's stress test, constructed his own stress test that assesses the tangible common equity of 21 banks, 12 of which are on the list to be tested by the government.

"While nowhere did the Treasury mention the word tangible, in recent testimony we have heard the term 'high quality' capital several times, so we went with tangible," wrote Goldberg.

Under the stress test scenario, Goldberg said banks need Tier 1 Capital of more than 6% to be considered well capitalized by the regulators. He believes that regulators will want at least half of that in tangible common equity. "We assume if Treasury wants the banks to continue to lend in this scenario, a buffer to 3% is required, so we went with 4%," he wrote.

With respect to tangible common equity and risk weighted assets, looking at fourth quarter 2010 bank results under a more adverse scenario, Bank of America Corp. (BAC), U.S. Bancorp (USB), PNC Financial Services Group Inc. (PNC), Wells Fargo & Co. (WFC), Fifth Third Bancorp (FITB), BB&T Corp. (BBT), Regions Financial Corp. (RF), and Citigroup (C) fell below the 4% line. However, this was before Citi's announcement Friday.

Under Goldberg's stress test model, U.S. Bancorp, PNC, and Wells Fargo were able to rectify the shortfall with dividend cuts.

Banks that had adequate tangible common equity ratios include JPMorgan Chase & Co. (JPM), State Street Corp. (STT) and SunTrust Banks Inc.(STI), with a tangible common equity of 4.9%, 10% and 4.1%, respectively. KeyCorp screened "better than would have been expected," with a 4.1% tangible common equity, Goldberg noted.

In Goldberg's report, released last week, he wrote, "after an initial, albeit rushed cut, most banks under coverage appear to pass the stress test," he wrote.

The government has started stress testing the banks, which include Goldman Sachs Group Inc. (GS), Bank of America Corp. and Capital One Financial Corp. (COF).

Banks are aware that tangible common equity is becoming more important. Citi announced Friday the U.S. Treasury will convert up to $25 billion of its preferred stock holdings into common stock, and touted that its tangible common equity ratio would be boosted.

Assuming maximum conversion, Citi's tangible common equity ratio would be in the area of 4.3%, Goldberg wrote in a research note; and as a percent of risk-weighted assets would be 8%, up from 3%.

Friday, Citigroup Chief Executive Officer Vikram Pandit said, "This securities exchange has one goal - to increase our tangible common equity. While we believe Tier 1 capital remains the most important measure of the financial strength of banks, we recognize that the markets also view tangible common equity as an important measure.

Looking at Goldberg's more adverse scenario, but using fourth-quarter 2008 earnings, some banks faired better. For example, U.S. Bancorp.'s tangible common equity was 3.5% with 2008 results compared to 1.2% using 2010 numbers. BB&T crossed the 4% line when looking at 2008 numbers with 6.3% compared to 3.4% when examining 2010 results.

-By Jessica Papini, Dow Jones Newswires; 201-938-2437; jessica.papini@dowjones.com