FDIC List of Troubled Banks and the Texas Ratio
The Texas Ratio is one measure that might offer a clue. The ratio was developed by RBC Capital Markets analyst Gerard Cassidy in the 1980's to forecast which banks could fail during the 1980's real estate bubble...deja vu, anyone?
The ratio is devised by comparing a bank's troubled loans to its capital. If the amount of bad loans equals or exceeds its capital, a ratio of 100% or higher, the bank might not have enough capital to cover its losses related to the bad loans on its books.
If a bank's Texas ratio is 100% or higher it doesn't necessary mean the bank will fail, a bank can raise more capital to cover its losses, though not an easy thing to do these days during the credit crunch.
Individual deposits are now covered by FDIC insurance up to $250,000 so most depositors don't have to worry about a bank failing but if you have a business line of credit or are planning to obtain a mortgage from a bank that is on the list you should start thinking about banking elsewhere.
To compile your own Texas Ratio list using the FDIC's statistics, visit //www2.fdic.gov/sdi/main.asp and use the following equation, Non-performing Assets and bank real estate owned (REO) divided by Equity and Loss Reserves.
ABC News recently reported on the Texas Ratio just after IndyMac Bank failed.
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