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US looks to tangible common equity in stress tests

US regulators want the top 19 banks being stress-tested to have at least 3% tangible common equity, according to a source familiar with the regulatory talks.

The source said the discussions on that key ratio were still fluid, but regulators are discussing using tangible common equity as a key measure for how the banks would fare if economic conditions deteriorate further.

Tangible common equity is a measure of capital strength that has been commanding more investor attention. It looks at how much common equity is supporting a company, and ignores intangible assets such as goodwill, on the theory that in bad times, intangible assets are less likely to have value. (Reuters)