Texas missed out on the best part of the housing bubble, and so, today, they are in better shape than either bubbly coast. Still, the troubles bring back memories of the early 80's:
Gerard Cassidy recalls living through the 1980s Texas bust as a "young and naïve" bank analyst with an insurance company that had a large exposure to Texas banks.
"I believed them hook, line and sinker, everything the banks told me," says Mr. Cassidy, now a bank analyst at Canadian investment bank RBC Capital Markets. "And we went down with the ship."
Out of the ruins, Mr. Cassidy developed his own way of gauging how likely a bank was to fail, dubbing it the "Texas Ratio." He takes nonperforming assets, then divides that figure by a bank's tangible capital (the value of outstanding stock plus retained earnings) and future loan loss reserves.
The higher the number, the more dangerous the situation, Mr. Cassidy says; a ratio over 100 percent suggests a high probability of failure.
Two months ago, Mr. Cassidy told MarketWatch, a financial-information Web site, that Pasadena, Calif.-based IndyMac Bancorp Inc. had a worrisomely high Texas Ratio.
IndyMac went bust this month in one of the largest bank failures in U.S. history.
What does Mr. Cassidy see now? More trouble – but he believes the situation is less dire than in the early '90s.
"Over the next three years, upwards of 300 banks could fail," he said. "But from a bank failure standpoint and an industry collapse standpoint, we were in far worse shape in '90 and '91 than the banking industry today."
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