Some Media Stories mention the Texas Ratio as a measurement of Bank Safety and Soundness. What is the Texas Ratio and how does it apply to Bank of Utah?
Notwithstanding what has happened with a few banks in Utah, including Barnes and Centennial Bank, the banking system in Utah is sound. Bank of Utah is considered “sound” when using the Texas Ratio as a measurement of safety and soundness. When asset quality is the primary issue the Texas ratio is one way to measure, with a reasonable degree of accuracy, the status of a bank or group of banks. This ratio is calculated by taking bad and delinquent loans divided by a bank’s cash on hand plus money set aside to cover loans that go bad. A bank is considered healthy when its Texas ratio is less than 40%. Banks are considered “vulnerable” when the Texas Ratio is above 50%. When higher than 100%, a bank is considered “severely stressed”. Bank of Utah’s Texas ratio is currently 14%.
