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.