Tangible common equity

Tangible common equity is a measure used to gauge how big a hit a bank can take before its shareholders’ equity is wiped out. Although a fairly old-fashioned ratio, it has become popular in the wake of the credit crunch as a way of assessing the worst-case scenario for battered banks. The calculation is a bit fiddly.

It starts with the value of a bank’s total net assets and subtracts intangible assets (long-term assets, such as mortgage servicing rights), goodwill (a very common intangible asset) and preference shares (since these would always have a prior claim on the bank’s assets before ordinary shares). This is divided by the bank’s tangible assets (these tend to include property, equipment and the like).

The higher the result, the better. Intangible assets (which can be a big proportion of a bank’s balance sheet) are excluded because they are deemed to have no value if a bank fails. But critics argue the TCE measure is too brutal and treats banks that hold toxic assets largely the same as those holding safer ones.

MoneyWeek magazine

Latest issue:

Magazine cover
The hunt for water

The most valuable commodity

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Robert Shiller: why one of the world's smartest economists is worried about the bond market

Merryn Somerset Webb talks to Yale professor and Nobel Prize winner Robert Shiller about how the power of 'stories' drives the global economy and creates financial bubbles.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


27 February 1900: The Labour Party is launched

Responding to the need for a single political party to represent the trade unions, the Labour Party was formed on this day in 1900, led by MP Keir Hardie.