TCE - stress test, solvency, calculation
Found out several interesting things about Tangible Common Equity Ratio (TCE) today.
*the so-called stress tests that banks are undergoing by the Treasury and the Fed are focused on the TCE. Hmm…interesting
*turns out that the OCC (Office of the Comptroller of the Currency) uses TCE to determine if a bank is insolvent and requires seizure by the FDIC. Did not know that.
*here is how you calculate it:
TCE ratio = (net capital) / (total assets)
So: = (capital - debt) / (total assets)
Course, “capital” can have several definitions, depending on which ratio you are trying to calculate. Usually,
Capital = common stock + preferred stock + deferred taxes
But for TCE, you only get to count common stock. So:
TCE ratio = (common stock - debt) / (total assets)