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. FDIC Problem Bank List

    A list of commercial banks in the U.S. that are considered to ...
  2. Bank Examination

    An evaluation of the safety and soundness of a bank. The primary ...
  3. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
  4. Bank Insurance

    A guarantee by the Federal Deposit Insurance Corporation (FDIC) ...
  5. Thrift Bank

    A financial institution focusing on taking deposits and originating ...
  6. Assuming Institution

    A healthy financial institution that purchases the assets of ...
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

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  3. 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.
  4. 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.
  5. Investing

    Certificates Of Deposit

    Safety is a hallmark of the traditional certificate of deposit (CD) sold by a bank or credit union.
  6. 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.
  7. 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?
  8. Investing

    Two Thrift Conversions for Your Portfolio

    Buying the stocks of these boring little banks can lead to very exciting profits.
  9. Financial Advisor

    Shareholders' Equity

    Learn how to calculate this common formula in finance.
RELATED FAQS
  1. 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 >>
  2. What are the Federal Reserve's guidelines on demand deposit accounts?

    Read about some of the Federal Reserve's requirements and guidelines regarding the treatment, safeguarding and processing ... Read Answer >>
Trading Center