The non-performing asset coverage ratio (NPACR) is a better predictor of bank failures than traditional capital ratios during the recent crisis. NPACR aligns capital and credit risks, is easier to calculate, considers different regulatory rules, prevents masking of capital deficiencies, and outperforms other ratios in predicting bank failures. This suggests that NPACR could be a more effective measure for bank regulators to use in taking prompt corrective actions.