The Texas ratio is a financial metric used to assess the credit risk and financial health of banks and financial institutions by comparing the amount of non-performing loans (NPLs) or troubled assets to the institution's tangible common equity capital and reserves. The Texas ratio is calculated by dividing the bank's non-performing assets by its tangible common equity and loan loss reserves, expressed as a percentage. A higher Texas ratio indicates a higher level of credit risk and potential insolvency, suggesting that the bank may be vulnerable to loan defaults, losses, or capital depletion due to a deteriorating loan portfolio or adverse economic conditions. Conversely, a lower Texas ratio suggests a healthier balance sheet, stronger capital position, and lower credit risk exposure, indicating the bank's ability to absorb losses and maintain solvency. The Texas ratio is named after the savings and loan crisis in Texas during the 1980s, where banks with high Texas ratios experienced significant financial distress and regulatory intervention. The Texas ratio is a useful early warning indicator for investors, regulators, and analysts to monitor banks' asset quality, creditworthiness, and financial stability, helping identify potential banking crises, systemic risks, or opportunities for distressed asset acquisition or resolution. However, the Texas ratio should be interpreted in conjunction with other financial metrics, risk factors, and qualitative assessments to provide a comprehensive evaluation of a bank's financial condition