Good Bank, Bad Bank: Learn If Your Bank Is Safe
Online Tools Help Spot Strong and Weak Banks, S&Ls, Credit Unions
Apr 28, 2009
Could your bank go under? Use these four free web sites of independent bank rating services to quickly check the strength of most financial institutions in the USA.
Individuals and businesses can--and perhaps should--use independent rating services as one determinate in deciding whether their banking institutions are likely to fail, survive or prosper in turbulent financial times.
Independent Ratings: A Disclaimer
The creators of such ratings generally do not guarantee the accuracy, completeness or timeliness of their information, and provide them "as is" on the condition individuals use them at their own risk. Nevertheless, taken together these rating services can enable one to develop a more precise measure of the vitality of a bank, savings & loan or credit union. Other factors to consider are a firm's CAMELS- Capital, Asset Quality, Management, Earnings, Liquidity and Sensitivity to market risk.
- Bankrate.com's proprietary "Safe and Sound®" one-to five-star rating system measures the relative financial strength of U.S. commercial banks, savings institutions and credit unions. The system applies 22 tests to each organization to measure liquidity, profitability, capital adequacy and asset quality. According to Bankrate.com's website, "individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key absolute benchmarks." Five-star firms are the safest.
- BauerFinancial, Inc., also ranks institutions on a scale ranging from "Zero" (lowest rating), one star (Troubled) through five star (Superior). It also identifies startup and failed banks and uninsured credit unions. BauerFinancial at its website states it analyzes data derived from federal regulatory information and uses criteria such as "capital ratio, profitability/loss trend, delinquent loans, repossessed assets, the market versus book value of the investment portfolio, regulatory supervisory agreements, the community reinvestment rating (CRA), and liquidity."
- TheStreet.com ranks banks and savings and loans on a letter grade Safety Rating scale, from A+ to F. According to information on its website, Its ratings are derived largely from regulatory financial statements and involve a "complex analysis of hundreds of factors that are synthesized into five indexes: capitalization, asset quality, profitability, liquidity and stability." A list of TheStreet.com's rankings of thousands of institutions is available from Weiss Research, Inc.
- Texas Ratio predicts the likelihood of a bank's failure due to its exposure to "bad" loans--i.e., those that are delinquent or non-performing. The ratio, whose predictive accuracy is somewhat controversial, compares a bank's bad debt to funds available to absorb debt: tangible equity capital and loss reserves (or money that the bank has set aside in anticipation of some loans going bad). The greater the Texas Ratio number, the greater the supposed likelihood of bank failure.
- FDIC does not release its internal bank strength rating report. It has a searchable index of institutions it insures, and exhaustive financial data. Its website can also be used to locate failed banks.
- Other independent bank rating services:
- Creative Investment Research, Inc.
- FIS - Financial Information Systems, LLC
- IDC Financial Publishing
- Institutional Risk Analytics
- Veribanc
The copyright of the article Good Bank, Bad Bank: Learn If Your Bank Is Safe in Banks is owned by George Daleiden. Permission to republish Good Bank, Bad Bank: Learn If Your Bank Is Safe in print or online must be granted by the author in writing.
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