Bank Rating

AAA

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).

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.

RELATED TERMS
  1. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
  2. Rating

    1. An evaluation of a corporate or municipal bond's relative ...
  3. Default Risk

    The event in which companies or individuals will be unable to ...
  4. Ratings Service

    A company, such as Moody's or Standard & Poor's, that rates ...
  5. Thrift Bank

    A financial institution focusing on taking deposits and originating ...
  6. Standard & Poor's - S&P

    The world's leading index provider and the foremost source of ...
RELATED FAQS
  1. What average annual growth rate is typical for the banking sector?

    The banking sector plays an important intermediary role by channeling available funds for productive uses in the economy ... Read Full Answer >>
  2. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
  3. What regulations exist to protect infant industries?

    There are far more protections of once-infant and now-dominant industries in the United States than regulations designed ... Read Full Answer >>
  4. How does protectionism affect gross domestic product (GDP?)

    The vast majority of economic literature suggests that protectionist policies reduce the gross domestic product, or GDP, ... Read Full Answer >>
  5. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  6. How did the Dodd-Frank Act change whistleblower protection and processes?

    In 2010, the Dodd-Frank Act strengthened and expanded the existing whistleblower program promulgated by the Sarbanes-Oxley ... Read Full Answer >>
Related Articles
  1. Insurance

    What You Need To Know About Financial Analysts

    Thinking about relying on analyst recommendations for your next trade? We'll show you what to watch out for.
  2. Economics

    Target Prices: The Key To Sound Investing

    Learn how to evaluate the legitimacy of target prices and why investors should trust these over ratings.
  3. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  4. Retirement

    Stock Ratings: The Good, The Bad And The Ugly

    Stock ratings are both loved and reviled. Find out why they deserve equal measures of both.
  5. Insurance

    Basel II Accord To Guard Against Financial Shocks

    Problems with the original accord became evident during the subprime crisis in 2007.
  6. Options & Futures

    Who Backs Up The FDIC?

    The FDIC insures depositors against loss, but what happens if it runs out of money?
  7. Options & Futures

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  8. Savings

    Bank Lingo: Routing Number Vs. Account Number

    Each consumer bank account has its own personal ID. And so does the bank. How do these numbers function and how do they protect the account holder?
  9. Insurance

    Why Is Health Care So Expensive In The Us?

    The U.S. is the world leader in only one area of health care: costs. Why is it so hard to rein in these expenses?
  10. Economics

    Explaining the Reserve Ratio

    Reserve ratio is the amount of cash a bank must keep in its bank vaults or deposit into a central, governing bank.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!