Tangible Common Equity refers to the subset of shareholders' equity that is not preferred equity and not intangible asset

Intangible asset

Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset...

s.

TCE is an uncommonly used measure of a company’s financial strength. It indicates how much ownership equity

Ownership equity

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...

 owners of common stock

Common stock

Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...

 would receive in the event of a company’s liquidation

Liquidation

In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...

. During the financial and economic crisis of 2008-2009, it gained public popularity as a measure of the viability of large commercial banks.

TCE, when used in a ratio with tangible common assets, is a measure of a bank's ability to absorb losses (e.g., homeowners defaulting on mortgages

Mortgage repossession

Mortgage RepossessionIn the UK, the repossession of a person's home due to default on a mortgage is known as mortgage repossession. The process typically involves obtaining firstly an order for possession in the courts, then an eviction warrant. The eviction is carried out by bailiffs...

) before becoming insolvent. It is one of the factors considered by the Office of the Comptroller of the Currency

Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...

 to determine if a bank has become insolvent.

Formulae

• TCE = total equity – intangible assets – goodwill – preferred stock
• TCE ratio = TCE / (total assets)
• Leverage ratio = (total assets – intangible assets – goodwill) / TCE

Example

On February 27, 2009, the U.S. Government

Federal government of the United States

The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...

 converted preferred shares to common shares in order to increase Citigroup

Citigroup

Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...

's tangible common equity. In this example, preferred stock equity is decreased, and total equity remains the same, increasing the TCE.