Tangible common equity removes preferred equity and intangible assets from total equity to provide a non-risk-weighted measure of common tangible capital.
Tangible common equity (TCE) is an analytical measure of common equity after subtracting preferred equity and intangible assets such as goodwill. The related TCE ratio usually compares TCE with tangible assets.
TCE is useful in bank and balance-sheet analysis, but it is not a standardized Basel regulatory-capital category. Definitions can vary across companies, analysts, and data providers.
A common bank-analysis definition is:
Some calculations adjust additional items, such as selected deferred tax assets, servicing rights, or other non-tangible balances. Those are definition choices, not universal TCE rules.
Assume a bank reports:
| Item | Amount |
|---|---|
| Total equity | $12.0 billion |
| Perpetual preferred equity | $1.0 billion |
| Goodwill | $2.0 billion |
| Other intangible assets | $0.5 billion |
| Total assets | $200.0 billion |
The ratio means the bank has about $4.30 of tangible common equity for each $100 of tangible assets under this definition. It does not mean 4.30% of the assets are expected to be lost.
Goodwill and many other intangible assets may have limited value in a rapid stress or liquidation and can be impaired when an acquisition underperforms. Preferred shareholders also rank ahead of common shareholders.
Removing those amounts gives analysts a simple view of the tangible balance-sheet cushion attributable to common equity. TCE can be useful when:
The simplicity is also a limitation. TCE generally treats tangible assets without assigning different regulatory risk weights.
| Measure | Numerator | Denominator | Status |
|---|---|---|---|
| TCE ratio | Common equity after preferred equity and intangible-asset adjustments under the chosen definition | Tangible assets | Nonstandard analytical measure |
| CET1 ratio | CET1 after prescribed regulatory adjustments | RWA | Regulatory risk-based ratio |
| Tier 1 capital ratio | CET1 plus eligible AT1 | RWA | Regulatory risk-based ratio |
| Tier 1 leverage ratio | Tier 1 capital | Applicable non-risk-weighted exposure measure | Regulatory leverage measure |
TCE and CET1 can move differently because regulatory adjustments do not match a simple tangible-equity calculation. Treatment of accumulated other comprehensive income, deferred tax assets, servicing rights, minority interests, and investments in financial institutions can produce important differences.
Tangible book value is closely related. At the company level, tangible book value often refers to common equity less intangible assets, which may equal or approximate TCE under the selected definitions.
Tangible book value per share divides the amount by common shares outstanding:
Share-count definitions, noncontrolling interests, and other adjustments can prevent exact equivalence.
The Federal Reserve uses a tangible common equity ratio as an alternative, non-risk-weighted bank-capital measure and defines its published series using equity and assets net of specified preferred equity and intangible assets:
This page provides general financial education, not investment, banking, accounting, legal, or regulatory advice. Reconcile the exact TCE definition before using a published ratio.