Texas Ratio

AAA

DEFINITION of 'Texas Ratio'

A ratio developed by Gerald Cassidy and other analysts at RDC Capital Markets to measure the credit problems of particular banks or regions of banks. The Texas ratio takes the amount of a bank's non-performing assets and loans, as well as loans delinquent for more than 90 days, and divides this number by the firm's tangible capital equity plus its loan loss reserve. A ratio of more than 100 (or 1:1) is considered a warning sign.

INVESTOPEDIA EXPLAINS 'Texas Ratio'

The Texas ratio was developed as an early warning system to identify potential problem banks. It was originally applied to banks in Texas in the 1980s and proved useful for New England banks in the early 1990s. This ratio can be useful when an asset held on a bank's balance sheet is falling in value, such as with oil reserves or mortgage assets.

RELATED TERMS
  1. Solvency Ratio

    One of many ratios used to measure a company's ability to meet ...
  2. Bank Capital

    The difference between the value of a bank's assets and its liabilities. ...
  3. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  4. Loan Loss Provision

    An expense set aside as an allowance for bad loans (customer ...
  5. Tangible Net Worth

    A measure of the physical worth of a company, which does not ...
  6. Nonperforming Loan - NPL

    A sum of borrowed money upon which the debtor has not made his ...
Related Articles
  1. Texas Ratio Rounds Up Bank Failures
    Personal Finance

    Texas Ratio Rounds Up Bank Failures

  2. Analyze Investments Quickly With Ratios
    Investing Basics

    Analyze Investments Quickly With Ratios

  3. Analyzing A Bank's Financial Statements
    Fundamental Analysis

    Analyzing A Bank's Financial Statements

  4. The Evolution Of Banking
    Credit & Loans

    The Evolution Of Banking

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center