Saturday, February 21, 2009

Here Today, Gone on Friday? How Is YOUR Bank Doing?

There’s a lot of talk these days about the nationalization of U.S. banks, how good credit unions may be a safer place to park our money these days, and the “Texas Ratio” which calculates the likelihood of a bank’s failure. The Texas Ratio is a ratio that was developed by Gerald Cassidy and many other analysts now at RDC Capital Markets that they formulated during the Texas Savings and Loan crises back in the early1990s. It takes a bank’s non-performing assets and loans which include loans that are delinquent for more than 90 days, then divides this number by the bank’s “tangible equity plus its loan loss reserve”. If this calculation equates to a ratio of 1:1 – a number of 100 or great – it is considered a warning sign. The higher that number, the better the chances of that bank’s failure.

As much as I like to crunch numbers, I also like to use my time wisely! So rather than dig around and collect the data to calculate these numbers for banks we have relationships with both personally and through business dealings, I’d much rather have a list to check that someone else already did, although I probably will calculate these ratios for banks we have accounts with. I came across this link in a comment on an article on CBSMarketwatch that not only provides the names and Texas Ratios for several banks, but their locations are mapped, too. But, being the type who likes to check and double-check my data sources, I like having another information resource.

So, now we can pay attention to banks who have accepted T.A.R.P. funds AND keep an eye on this Texas Ratio results list to see if we need to do any other “readjusting” so that: a) we aren’t supporting organizations whose business philosophies do not coincide with our own, and b) we don’t get thrown under the bus by the fast demise of a bank. For example, Silver Falls Bank was one the most recent Oregon Bank failures, having been taken over by the F.D.I.C. on Friday, and their Texas Ratio is reported at 176 on this list, but in January 2008 they were putting out positive reports on their stability! The FDIC will not publish their internal list that they keep, and as much as I would hate to see any “run on a bank”, nor do I want to find I can’t get to my money if I want to! Yeah, our deposits are insured, but who wants to deal with this?

Is this Texas Ratio an infallible predictor? Obviously not, since WaMu and Wachovia did not have Texas ratios that sent up caution signs, yet they have both failed for various reasons. So, how healthy is YOUR bank? Maybe you should check it out.

See you out there!

Karen Cooper – OR/CA Mortgage Consultant –

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