Texas ratio
Encyclopedia
The Texas ratio is a measure of a bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

's credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...

 troubles. The higher the Texas ratio, the more severe the credit troubles.

Developed by Gerard Cassidy and others at RBC Capital Markets
RBC Capital Markets
RBC Capital Markets is a Canadian investment bank with assets of $711 billion. It is part of the Royal Bank of Canada and has one of the highest credit ratings in the world by Moody's and Standard & Poor's.,According to Bloomberg, RBCCM is consistently ranked among the top 20 global investment...

, it is calculated by dividing the value of the lender's non-performing asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s (Non performing loans + Real Estate Owned) by the sum of its tangible common equity
Tangible Common Equity
Tangible Common Equity refers to the subset of shareholders' equity that is not preferred equity and not intangible assets.TCE is an uncommonly used measure of a company’s financial strength. It indicates how much ownership equity owners of common stock would receive in the event of a company’s...

 capital and loan loss reserves.

In analyzing Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...

 banks during the early 1980s recession
Early 1980s recession
The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect other OECD nations through at least 1985...

, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England
New England
New England is a region in the northeastern corner of the United States consisting of the six states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut...

 banks during the recession of the early 1990s.

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