A look at the "Texas ratio" and stress tests

A lot is riding on the so-called stress tests that are currently underway for banks with more than $100 billion in assets. We're starting to see a lot of analysis around which banks are more likely to fare well and which will likely need more capital. TheStreet.com takes an interesting look, focusing on the ratio of nonperforming loans and debt securities to tier-1 capital and loan loss reserves--known as the Texas Ratio. 

"While so many recent discussions have focused on tangible common equity (to total asset) ratios, the fact is that preferred equity capital is still capital." A Texas ratio in excess of 20 percent is considered problematic. U.S.-controlled large bank holding companies with Texas ratios exceeding 20 percent included Citigroup, Wells Fargo, SunTrust, and Fifth Third. 

For more:
- here's the article

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