TCE vs Tier I

Speaking of banks and intangible assets (see earlier posting), here is an interesting summary of the debate over how to count bank assets – from the NY Times blog Dealbook – Questioning Wall Street’s Favorite Bank Benchmark. The article describes the difference between using “tangible common equity” (TCE) to measure the level of bank capital or the current regulatory definition of “Tier I” capital. A big difference: Tier I includes some intangibles.
On the one side are people like former House Banking Committee Chairman Jim Leach, who is quoted saying “The fact that we even have anything other than T.C.E. is a reflection on judgment, which was deeply lacking.” On the other side is Warren Buffett (among others), who is quoted as explaining the flaws of TCE by saying “”Coca-Cola has no tangible common equity, but they’ve got huge earning power.”
For right now, the banking analysts and the markets are focused solely on TCE. In this age of uncertainly, I guess they don’t care about intangibles.

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