Tacitus

Tangible Common Equity: How Much Is Enough?

Thanks for a good analysis and a great chart. I think TCE is a valuable gauge of solvency, but to me it has a number of flaws that require that regulators also consider a number of other factors. For example, and frankly contrary to one point you make, an awful lot of common shareholders are also fair weather friends; the buy and hold days are, for most investors, dead and gone. That means that bad news and a panicked sell-off can unfairly drive down TCE on a temporary basis even for the best managed bank imaginable. That fact needs to be accounted for. Secondly, actual deposits on hand have to be considered in assessing the health of any bank. BAC, for example, has nearly a trillion dollars in deposits, of which nearly $850 billion are essentially always on hand. That is not to say BAC doesn't have some big problems, but it puts them on a much sounder footing than Citi or another bank without such a vast depositor base. In my view, it is depositors, not common shareholders, who are more likely to stick with a bank through thick and thin.