by Calculated Risk on 9/26/2009 09:25:00 PM

The American University School and MSNBC have created a tool for tracking the "troubled asset ratio" for banks. This tool allows you to search for individual banks.

Here is the description:

[The] “troubled asset ratio” ... compares the sum of troubled assets with the sum of Tier 1 Capital plus Loan Loss Reserves. Generally speaking, higher values in this ratio indicate that a bank is under more stress caused by loans that are not paying as scheduled.

Wendell Cochran, senior editor of the Investigative Reporting Workshop, and a former business reporter for the Kansas City Star, the Des Moines Register and Gannett News Service, was likely the first journalist to create this measure of bank health. He did that while covering banking for the Des Moines Register in the early 1980s. Later, at Gannett News Service, he was involved in projects published at USA TODAY and elsewhere that calculated this ratio for every bank and savings and loan in the nation.

Others do similar calculations. The most widely used is the so-called Texas Ratio, created during the 1980s by a banking consultant. You can find various formulas for calculating this ratio, but they generally are in line with the method used by the Investigative Reporting Workshop. There is no attempt here to value the non-loan assets that may also be causing bank problems, such as mortgage-backed securities, collateralized debt obligations, etc.

According to BankTracker, the national median troubled-asset ratio is 13 (a percentage of Tier 1 Capital plus Loan Loss Reserves). The most recent bank failure, Georgian Bank in Altanta Georgia had a ratio of 198.3.

I looked up a few banks from the Unofficial Problem Bank List with Prompt Corrective Actions:

Name	City	State	PCA	Troubled Asset Ratio
Peoples First Community Bank	Panama City	FL	6/11/2009	362.8
Warren Bank	Warren	MI	8/3/2009	351.1
Home Federal Savings Bank	Detroit	MI	3/5/2009	193.2
Bank of Elmwood	Racine	WI	7/23/2009	182.5
American United Bank	Lawrenceville	GA	8/13/2009	155.3
Heritage Bank	Topeka	KS	3/31/2009	149.1
Bank 1st	Albuquerque	NM	8/31/2009	146.1