Bank Stress Tests – Tangible Assets With Intangible Consequences
The stress tests appear to be boiling down to one critical measurement of bank capital, Tangible Common Equity (TCE). While the assets themselves may be tangible, the intangible result could be a tectonic shift to a politicized banking system. To avoid any confusion it is probably best that I define my terms at the outset:
1. Tangible Common Equity (TCE) equals book value minus intangible assets, goodwill, and preferred equity. Essentially this is the most conservative measure of bank capital and represents what common shareholders would have left if a bank were liquidated.
2. Tangible Book Value (TBV) equals book value minus intangible assets and goodwill. This measure would include preferred shares held by the government and private investors and gives a broad view of… Continue reading | 3 Comments