Texas ratio

The Texas ratio is a metric used to assess the extent of a bank's credit problems.

Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (NPL + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

While analyzing Texas banks during the early 1980s recession, Cassidy observed that banks typically failed when this ratio reached 1:1, or 100%. He later identified a similar pattern among New England banks during the early 1990s recession.

• Barr, Alistair (May 23, 2008). "Bank failures to surge in coming years". MarketWatch.com. Retrieved 11 Nov 2010.

• Current Texas Ratios for all US Banks and Credit Unions
• Current Texas Ratios for US Banks Updated May 21st 2010 by Amateur Investors
• Complete list of US banks and their Texas ratios as published in December of 2008 and an updated listing published in October of 2009; the original blog entry includes notes how the tables were created (that the ratio was multiplied by 100 for easier comprehension, etc.)

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