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Why It’s So Hard to Lookup Bank Ratings

If you haven’t already heard, 2 more banks failed over the weekend—1st National Bank of Nevada and First Heritage Bank. 1st National Bank of Nevada got hit hard by tanking Las Vegas real estate, and First Heritage Bank was hemorrhaging cash from soaring foreclosures in California.

Was there any way that the public could have predicted these failures? Wouldn’t it be nice to have some kind of 3rd party agency issue ratings on banks? After all, companies like Standard & Poors and Moodys issue ratings on bonds, why not do the same for banks?

The FDIC Won’t Let You See CAMELS Bank Ratings
Federal regulators like the FDIC, OCC, and OTS use a benchmark called the CAMELS rating system to rate how safe and well capitalized a bank is. CAMELS takes into account:

  • (C) Capital adequacy
  • (A) Asset quality
  • (M) Management
  • (E) Earnings
  • (L) Liquidity
  • (S) Sensitivity to market risk

Based on this criteria, banks are assigned a score from 1 to 5, with 5 being the weakest score. All banks are rated on this scale, and the scores are shared with federal regulators and the management of banks, but guess what? It is prohibited by law for people to share these CAMELS scores with the public! The Feds argue that this is to prevent a bank run on banks that have poor scores… but then again, its your money… shouldn’t you have the right to know?

Free Bank Rating Services
Since the public is denied access to the official CAMELS bank ratings, 3rd parties have to piece together proprietary ratings using publicly information like quarterly stock reports and FDIC filings. For instance, Bankrate offers their proprietary Safe & Sound® ratings for free. You can see their star ratings on our interest rate tables.

BauerFinancial also offers a free rating service. Just type in the bank name and it will display a star rating indicating how safe the bank is.

Which one is more accurate? I honestly don’t know. If any banking / financial experts have any input, please leave a comment.

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Comments (7)
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7 Existing Comments
  1. Dan Tanner said:
    on July 30th at 03:52 am

    US public should have access to all the secret information on all the banks. After all its our money at risk, not theirs.

    http://indexoptionstrading.alliancemtg.com

  2. Dan Kang said:
    on August 20th at 07:19 pm

    the risk of a run on the bank is exactly why the information should be made public. If a bank sucks then good riddance! That is what capitalism is all about. But it wouldn’t be a “run” per say but more like a trickle, like the trickle off effect, not the other trickle down effect from Reagan years. I’m assuming the rating changes from quarter to quarter depending on movement of capital in and out of the bank. The fact that these movements will be transparent will make the bank more diligent in their investments. The fact that revealing them now will cause runs on certain banks is just growing pains. Let’s have them out now instead of sneaking up on us like this last fiasco.

  3. Steve Fong said:
    on September 17th at 09:52 pm

    Thomson Bank Watch rates banks but unfortunately you have to be a corporate subscriber (very expensive) to gain access to their rating. Moody’s and S+P both rate the debt instruments of banks but again, that information is proprietary.

    I would start calling your bank and asking them for the ratings. If enough people ask these questions, the customer service reps will have to get the answer and we the general public will know the true ratings of our banks.

    In my prior life I used these ratings to ensure safety in the portfolios of the companies I worked for.

  4. Susan Smith said:
    on October 1st at 09:17 am

    Veribanc is the best bank rating service, but what you need to know is are the small bank profitable and have enough capital to survive the derivative bomb and its results. Large banks will have something on their reports called level three assets. The numbers in level 3 are huge for larger banks, and unfortunately it is because they ran SIV’s on commericial paper based on bad mortgage bonds for a small profit. As subprime declined, banks had to take these non-performing assets back on there books, causing greater losses, which caused most of them to book derivatives faster. The reason that AIG, Fanny and Freddy, and Bear were bailed out is because they all involved more than 500 million in CDS going off. A CDS is a idoitic piece of paper that a stupid person pays a probably stupider person for to guarantee that if a company defaults, this other person will pay them. They are stupid because people usually do this if they have bought bonds in a declining company with many other people, or if they are a bank. They are stupid because if the US allowed F+F to default instead of accepting a trillion dollars to the nation debt because this, more than a trillion dollars of CDS contracts would have triggered. If anyone thinks that one of the major players in derivatives could with stand the failure of a majorly hedged bond position, they are pretty stupid. Say GM fails, immediately most of the bond holder, and many people who are not bond holders with show up with more than 20 times the debt value of GM and want and investment banking house to pay it. They are even stupider because although they have been using derivatives to print money, tax free, for the last 20 years, they will all be bankrupt soon if no can defuse the CDS’s. Total value of outstanding derivatives, over one quadrillion dollars. Everyone better get used to being nice to the Chinese.

  5. Macbob said:
    on October 24th at 03:09 pm

    bankrate.com has their Safe and Sound 1-5 Ratings and can also see detailed financial info broken by categories that give a very good rating of bank.
    For general bank rating summary info (no deailed financials), try The Street.com .
    Both appear to be reliable.

  6. Kim said:
    on May 19th at 09:32 am

    Maybe also have a look at http://www.bank-ratings.ne where I found something useful about it.

  7. Kim said:
    on May 19th at 09:33 am

    sorry I meant http://www.bank-ratings.net