DEFINITION of 'Bank Rating'

Ratings provided to the public by the Federal Deposit Insurance Corporation (FDIC), and/or other private companies on the safety and soundness of banks and thrift institutions. A bank rating will usually assign a letter grade or numerical ranking based on proprietary formulas. These formulas are typically based on capital, asset quality, management, earnings, liquidity, and sensitivity to market risk (CAMELS).

BREAKING DOWN 'Bank Rating'

The CAMELS rating is assigned by government regulators on a scale of 1 to 5, with 1 and 2 being assigned to financial institutions that are in the best fundamental condition. A rating of 4 or 5 often indicates serious problems that require immediat action or careful monitoring. A rating of 5 is given to an institution that has a high probability of failure within the next 12 months.

The CAMELS rating is never relased to the public, and is kept confidential. For this reason, the private bank-rating companies use proprietary formulas in an attempt to replicate it. Because no rating service is identical, investors and clients should consult multiple ratings when analyzing their financial institution.

RELATED TERMS
  1. CAMELS Rating System

    An international bank-rating system where bank supervisory authorities ...
  2. Bank Examination

    An evaluation of the safety and soundness of a bank. The primary ...
  3. FDIC Problem Bank List

    A list of commercial banks in the U.S. that are considered to ...
  4. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
  5. Assuming Institution

    A healthy financial institution that purchases the assets of ...
  6. Bank Insurance

    A guarantee by the Federal Deposit Insurance Corporation (FDIC) ...
Related Articles
  1. Personal Finance

    Explaining the CAMELS Rating System

    Regulators use the CAMELS rating system to evaluate a bank’s level of risk and overall condition.
  2. Insurance

    Federal Deposit Insurance Corporation (FDIC)

    The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks and thrift institutions.
  3. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  4. Investing

    Who Backs Up The FDIC?

    The FDIC insures depositors against loss, but what happens if it runs out of money?
  5. Investing

    Mutual Funds Are Not FDIC Insured: Here Is Why

    Find out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
  6. Small Business

    A New Plan To Prevent Future Bailouts

    This new and innovative plan by the FDIC could help the government avoid the next bailout.
  7. Investing

    Certificates Of Deposit

    Safety is a hallmark of the traditional certificate of deposit (CD) sold by a bank or credit union.
  8. Personal Finance

    Find the Best Savings Account Rates

    You know how to spot the highest interest rate, but how do you really get the best deal on savings accounts?
  9. Investing

    FDIC Sues Bank of America Over Deposit Insurance

    In a lawsuit filed Monday, the FDIC says Bank of America owes at least $542 million for deposit insurance.
  10. Investing

    Understanding Proprietary Trading

    A firm engages in proprietary trading when it uses its own money to trade financial instruments in order to profit for itself.
RELATED FAQS
  1. Why are CDs (Certificate of Deposit) FDIC-insured?

    Find out why certificate of deposits (CDs) are insured by the FDIC and what the deposit requirements are for receiving insurance ... Read Answer >>
  2. Why is my 401(k) not FDIC-Insured?

    Learn about the Federal Deposit Insurance Corporation (FDIC) and whether its protection extends to 401(k) accounts or just ... Read Answer >>
  3. Are 401ks FDIC insured?

    Learn what part of your 401(k) retirement plan is covered by FDIC insurance, and what part is not. Find out what happens ... Read Answer >>
  4. What are the major categories of financial institutions and what are their primary ...

    Understand the various types of financial institutions that exist in today's economy, and learn the purpose each serves in ... Read Answer >>
  5. What are some of the major regulatory agencies responsible for overseeing financial ...

    Discover the specific responsibilities of some of the major regulatory agencies that oversee financial institutions in the ... Read Answer >>
Trading Center