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).
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