He may be a Harvard guy, but Richard Fisher, CEO and president of the Federal Reserve Bank of Dallas, has his heart in Texas, specifically Texas banking.

He sees the state’s banks as the best run in the nation, with Lone Star banks earning a profit of $1.4 billion in 2009 when the entire U.S. banking industry lost $11.5 billion. Fisher made his comments during a speech to the Texas Bankers Association Friday. It’s a reiteration of points he laid out in a video interview with HousingWire earlier this week.

Texas banks, according to Fisher, earned a return on assets of 1.1% last year, while banks nationwide earned a return on investment of 0.9%.

So what did Texas do to avoid the steep slope that took other banks down? Fisher points to the  conservative state rules that have dominated local banking since the S&L crisis. Fisher revived the so-called Texas ratio to measure banking stability to show how far the state has come since the 1980s crisis.

The Texas ratio is calculated as noncurrent loans plus REO expressed as a percentage of tangible equity capital plus loan-loss reserves, Fisher said. The idea is to ensure the ratio does not exceed 100%.

“We earned that moniker in the late 1980s when 20% of our banks had a Texas ratio exceeding 100%,” Fisher said. “However, in 2011 only 0.9% of Texas banks had a Texas ratio greater than 100%, compared with 4.6% nationwide — and that nationwide number is down from a 5.7% peak in 2010.”

In 2011, 24 banks in Georgia — a state wracked by failed banks post 2008 — had a Texas ratio higher than 100%, Fisher said.



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