Bank Rating
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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). |
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Investopedia explains '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. |
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