International Bank of Commerce: Texas Ratio

The Texas Ratio compares a bank's problem assets (nonaccrual and 90-day past due loans, net of government guarantees, plus other real estate owned) to its loss-absorbing capacity (tangible equity plus loan loss reserves). Coined during the 1980s Texas banking crisis, it remains the single most widely cited bank failure indicator.

Under 25%: healthy. 25-50%: above most banks (the median bank is near 3%) but below the 50% level at which problem assets reach half of the capital cushion. 50-100%: watch, problem assets exceed half of loss-absorbing capacity. Over 100%: elevated failure risk; the bank's bad assets exceed its capacity to absorb them. The ratio should be read against trend. A stable 70% is different from a quickly rising 60%.