What is the ratio of Texas?
Texas ratio is an informal measure of the bank's strength, calculated by dividing the bank's problem loans according to capital. The Texas ratio was developed in the 80s. It was found that when the ratio equals 1.00 or more, the bank is at significant risk of failure.
In the United States, banks are highly regulated with regard to the amount of capital they have in reserve and the quality of the loans they have issued. When the bank fails, Federal Insurance Insurance Corporation (FDIC) enters its assets and sets a relatively normal continuation of business to avoid financial panic. FDIC does not publish its calculations or notify which banks, if existed, are in danger of failure. In the absence of such information from FDIC, potential investors can use Texas as a relatively reliable instructions.
FDIC carefully and consistently monitors banks and is aware that the bankAnd he can fail a long time before he actually does it; However, to prevent panic, such sensitive data will not be shared. Potential investors must rely on publicly available data, such as the data used to calculate the Texas ratio whose components are easily accessible from the balance sheet. Specifically, non -repaying assets used in the calculation are all loans that are more than 90 days off, plus all real estate owned (REo) for closing the market and capital is the sum of capital and loss reserves. At the nationwide level at the age of 80 and again in the 90s in New England, Texas was a reliable indicator of problem banks.
While the Texas ratio can be a reliable instructions that banks are potential failures, it is not a guaranteed predictor of failure. Banks Whospometer E texas slips over 1.00 brands that are often able to get sufficient capital to prevent FDIC seizure. Wise investors and customers can sometimes recognize banks,that seeks to acquire capital and use them as further information in investment decisions. For example, banks will offer highly favorable rates in deposit certificates (CDS), often up to half a percentage point, or even more than the rates offered by its competitors. Since such rates are not guaranteed after the FDIC seizure date, cautious investors can delay the purchase of such CDs if the banks offered have a high Texas ratio.