Glossary

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.

Tangible common equityis 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).

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement

Most Popular

Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/600814/money-minute-friday-14-february-the-latest-from-rbs-britains-state-owned-bank
Economy

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019