NEW YORK. July 19, 2008
Calculating Your Bank's Health
A Little Known Formula Known As The Texas Ratio Can Gauge How Distressed A Financial Institution Is
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Play CBS Video Video 'Texas Ratio' Bank Formula After the sudden collapse of IndyMac, many Americans are now concerned about the status and future of their banks. But, as Priya David reports, a financial formula could hold the answer.
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With many consumers worried about their savings, a little known formula is being used to calculate the health of banks and other financial institutions. (CBS)
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In-Depth Bank Seizure Q&A What if my bank fails? Some questions and answers in the wake of IndyMac Bank.
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Interactive Eye On The Economy In-depth features on U.S. markets, taxes, employment and the Federal Reserve.
"The economy has slowed down and it has caused problems for some banks," said Paul Mersky, chief economist for the Independent Community Bankers of America.
The Federal Deposit Insurance Corporation, which oversees the nation's 8,500 banking institutions is reportedly watching 90 additional banks.
But some Wall Street analysts using a little known formula called the "Texas ratio" say as many as 150 financially strapped institutions could fall over the next 18 months.
The Texas ratio is calculated by dividing the institution's bad and delinquent loans by its cash on hand plus money set aside to cover loans that go bad. A ratio of 100 or higher means a bank is in deep financial distress. IndyMac's recent Texas ratio was 116.
Other banks and savings institutions' Texas ratios, once closely held by banking industry insiders, are now leaking to the public.
CBS News has obtained a list compiled just last month of 50 institutions, many with ratios higher than IndyMac's. (See lists below)
Those with the highest Texas ratios are smaller, community banks such as Colorado Federal Savings Bank, with a Texas ratio of 709; Integrity Bancshares in Georgia, with a ratio of 371; Stockgrowers State Bank of Maple Hill, Kan., has a 369; and Mesilla Valley Bank in New Mexico, with a 362.
Stockgrowers State Bank of Maple Hill, Kan., says that its Texas ratio was based on an error in its filing to the FDIC and has since refiled with the correct numbers. Stockgrowers says that it's well capitalized.
"If you are a shareholder, if you are a borrower who wants future loans, then you should be concerned," said Lawrence White of the NYU Stern School of Business.
But for most customers, "there is no alarm out there for consumers with money in community banks," said Mersky.
Mersky points out individual deposits up to $100,000 are federally insured, so if a bank fails, most consumers' accounts are protected.
"Certainly the consumer has a lot to worry about," said Mersky. "But one thing they don't have to worry about is secured deposits in community banks."
But only to a point. That $100,000 guarantee is per person, so for people with more than that amount in any account, it's best to move some of it to a different bank to protect all the assets.
Editor's Note: This story was updated on July 21, 2008, after CBS News received this response from Stockgrowers State Bank of Maple Hill, Kan., regarding their ranking on this list. Calculating Stockgrowers' new data provided to the FDIC, the bank's Texas ratio is 8.2 percent. Stockgrowers State Bank of Ashland, Kan., which is not affiliated with the bank of the same name in Maple Hill, Kan., was never intended to be the subject of this report and should not be identified as one of the institutions which received a high Texas ratio from SNL Financial's list published June 9, 2008.
(SNL Financial/FDIC, 6/9/08)
(SNL Financial/FDIC, 6/9/08)
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Add a Comment See all 22 Comments
- Information provided in this article is misleading and incorrect. There are 2 banks in Kansas with the same name: Stockgrowers State Bank of Maple Hill (which the article is referring to) and Stockgrowers State Bank in Ashland. The 2 banks are not related in any way. First & formost, get the facts from the correct information sources. Don''t beleive everything you hear on the news! Check out FDIC.gov and check out your own bank''s financial condition. Here you will find Stockgrowers State Bank of Ashland in solid, strong community bank!
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- How do you know if it''s your bank on this list. For instance, there is a bank listed on here that I know for a fact it''s not affliated with my bank but they have the same name.
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- It is perversely funny that the difference between a banks lies and reality is named after Texas.
Posted by brianbwb at 05:12 AM : Jul 20, 2008
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Irony at its greatest! - Reply to this comment
- Also, anytime Politicians decide to hand out $600 dollar checks to the Surfs, you better be looking for some vaseline real fast.....
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- Banks are not going to be putting ''''going out of business'''' signs in the window. One day you''''ll just hear that your bank went under. The situation is going to turn for the worse in the next 60 days. Take your money out now.
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Posted by iphyt4u at 10:57 AM : Jul 20, 2008
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The day before Bear went Titts up, the Financial Forcasts for it''s future were Bright and Sunny.
One only need look at the silence from Washington to know we are in close proximity to a complete Economic Implosion. They''ll continue to get their Paychecks and Self Approved Pay Raises, while everyone else slips into the Vortex of Doom......
"Hold on Lady, We''re going for a Ride"....
-"Short-Round"
(Indiana Jones) - Reply to this comment
- Banks are not going to be putting ''going out of business'' signs in the window. One day you''ll just hear that your bank went under. The situation is going to turn for the worse in the next 60 days. Take your money out now.
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- Not to worry--John McCain will make sure his wife''s bankers get back every penny of their money, even if he has to raise taxes to do so.
Look how well he did for the Savings and Loan industry when basically the same thing happened to them.
You can always count on a Republican to give welfare to the rich. - Reply to this comment
- Now that we have a list of the biggest thieves, let us run on them two at a time, shutting them down, until someone gets the message that we are not taking BS from them anymore.
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- "martha44" is the PR director at a competitor bank down the street from First City." Posted by DaysRnumbrd
Seeing as how Georgia has 10 banks on a list of the 25 worst, the bank down the street is probably no better off, so if what you say is true, then "martha44" would do well to keep a lower profile... - Reply to this comment
- It is perversely funny that the difference between a banks lies and reality is named after Texas.
- Reply to this comment
- "martha44" is the PR director at a competitor bank down the street from First City.
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- Posted by fixhist at 04:09 AM : Jul 20, 2008
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"Oakishpines" would be proud of your post! - Reply to this comment
- Bankers take risks because they know that the US taxpayer will bail them out. Does the Bush crime family intend to pay back all Bear Stearns stockholders who were lied to regarding the financial health of Bear Stearns? NOT GONNA HAPPEN!
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- I wondered why one of my banks was offering short term CDs at up to 5% APY in today''s environment. Apparently to raise immediate capital to buy time until the environment improves.
I supported their efforts and opened a number of small CDs. It''s better than the .5% being paid on savings accounts these days. However, I did not give them new monies. Just what they already had, but now I get a much better return. - Reply to this comment
- "Mersky points out individual deposits up to $100,000 are federally insured, so if a bank fails, most consumers'' accounts are protected."
YEah big F deal, the federal Govt is almost bankrupt itself, besides, what good is insurance on your deposit accounts if it takes SIX MONTHS to get your money back after they go thru all the audits and all the rest??
Best thing is do not keep cash in a bank, cause if they shut their doors on Friday and you have checks out and bills to pay on Monday and your account is LOCKED UP because the bank shut down, then it''s all fine and dandy to be told you are insured- your DEPOSIT may be insured, your resulting bounced checks, late payments and fees on credit cards etc are NOT covered.
Cash at home, bank credit card for purchases, then if the bank goes belly up it won''t matter to you cause you have your cash and they are stuck holding the amount you have as a balance on the card. - Reply to this comment
- Another opportunity for John "Keating Five" McSame and Neil "Duh-byuh''s Bruddah" Bush to rip off the taxpayers.
Why aren''t these crooks in jail for the LAST time they "broke the banks"? - Reply to this comment
- Sorry martha44 , but repeating the same thing about 20 times does not make it true!
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- I can see the queues forming outside their doors now waiting for the Monday opening.
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- All thee banks are going to go.
The world''s financial system is done, it''s over.
Prepare for the New World Order Under Debt Serfdom. - Reply to this comment
- Lemme guess .. with all the capitalized scream posts you''ve already sold first city stock short and the deadline is approaching
- Reply to this comment
The road ahead in Afghanistan, and the crucial decision Obama faces.
