Bank Rating

Banks are rated by a lot of agencies. If you Google "bank rating," there are a number of different services rating banks, including Bankrate, Bauer Financial, Creative Investment Research, Fitch, IDC Financial, Moody's, Sheshunoff Information Service, Veribank. A veritable smorgasbord of rating services, available for a fee. They make their money, um...rating banks. Duh.

However, the crux of it all is that those services are using financial statements combined with on-site examinations conducted by supervisory regulatory agencies. In the U.S., the official supervisory regulatory agencies include the Federal Reserve, the Office of the Comptroller of the Currency, the National Credit Union Administration (NCUA), the Farm Credit Administration, and the Federal Deposit Insurance Corporation (FDIC).

The backbone of a bank's rating is the CAMELS rating. (You really can't make this stuff up). The components of a bank's condition (CAMELS rating) are:

· (C)apital adequacy
· (A)ssets
· (M)anagement Capability
· (E)arnings
· (L)iquidity (also called asset liability management)
· (S)ensitivity (sensitivity to market risk, especially interest rate risk)

Ratings are given from 1 (best) to 5 (worst) in each of the above categories. The compilation of the ratings gives the public an indication of the stability of bank A or bank B, etc.

With banking, as in the desert, ride the CAMELS.