What is the Texas ratio?

The name

In the 1980s, Texas had a banking crisis whose causes included shocks in oil prices and real estate investments. In response, Gerard Cassidy of the Royal Bank of Canada developed the Texas ratio metric to assess a bank’s credit risk in that state.

The definition

The Texas ratio measures a bank’s nonperforming loans divided by the sum of tangible equity capital and allowance for losses on loans and leases.

Nonperforming loans consist of the following:

1. Nonaccrual loans, where a lender stops adding expected interest to their reported income.
2. Loans with payments 90 or more days past due.
3. Real estate assets acquired through foreclosure.

Tangible equity capital represents the available capital cushion to absorb losses and is found by subtracting intangible assets from total bank equity capital. Allowance for loan losses represents funds set aside to cover expected loan losses.

The interpretation

The lower the ratio (that is, the closer to 0%), the smaller the risk of loan losses to a bank’s capital. The higher the ratio, especially if it exceeds 100%, the greater the risk of a bank being unable to cover its potential loan losses.

The graphed data

Our FRED graph shows the aggregated Texas ratio for all FDIC-insured commercial banks in the U.S. between the first quarter of 1984 and the first quarter of 2026. At the time of this writing, its value is 5.82%. That’s near the all-time low of 4.59% recorded during the second quarter of 2022.

Read more about the Texas ratio, including values by bank size, in Banking Analytics: Understanding Credit Risk with the Texas Ratio.

How this graph was created: Search FRED for and select “Balance Sheet: Loans and Leases in Nonaccrual Status, Millions of U.S. Dollars, Not Seasonally Adjusted.” Click on the “Edit Graph” button and under the “Customize data” section in the “Edit Line” tab, search for “Balance Sheet: Loans and Leases 90 Days or More Past Due, Millions of U.S. Dollars, Not Seasonally Adjusted” and click “Add.” Repeat for “Balance Sheet: Total Assets: Other Real Estate Owned, Millions of U.S. Dollars, Not Seasonally Adjusted,” “Balance Sheet: Total Liabilities and Capital: Total Equity Capital: Total Bank Equity Capital, Millions of U.S. Dollars, Not Seasonally Adjusted,” “Balance Sheet: Total Assets: Intangible Assets, Millions of U.S. Dollars, Not Seasonally Adjusted,” and “Balance Sheet: Total Assets: Total Loans and Leases: Less: Reserve for Losses, Millions of U.S. Dollars, Not Seasonally Adjusted.” Enter the formula 100 * (a+b+c) / (d-e+f).

Suggested by Steven Tian and Diego Mendez-Carbajo.