Guide to Bank Health Ratings

By Dan Miller · June 25, 2024 · 6 minute read

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Guide to Bank Health Ratings

There are thousands of banks and other financial institutions in the United States, and consumers have a variety of choices for where to keep their money. Bank health ratings are one tool that people can use to identify where they should invest their assets. Several government and non-government agencies issue bank health ratings, based on a number of criteria and various ranking systems.

It can be a good idea to make sure any financial institution where you are considering depositing your money has a good bank health rating. Here, learn more about how to do this.

What Are Bank Ratings?

Bank ratings express how healthy and reliable a financial institution is. A solid number can inspire you to feel confident about opening accounts with a particular bank.

The Federal Deposit Insurance Corporation (FDIC) is one of the primary governmental agencies that oversees banking in the United States. The FDIC was created in 1933 in the wake of the Great Depression. The entity examines and supervises financial institutions for safety and soundness as well as enforcement of bank regulations. It is one of the primary entities responsible for rating banks.

The FDIC, however, is not the only company that evaluates banks. There are other resources that give banks credit worthiness ratings, such as Standard & Poor’s, Fitch, and Moody’s.

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How Bank Ratings Are Calculated

There are a number of different ways bank ratings are calculated, depending on the institution that is doing the rating. The Federal Reserve, FDIC and other governmental financial agencies use the CAMELS system, ranking bank health and safety on six different criteria:

•   (C)apital adequacy

•   (A)sset quality

•   (M)anagement

•   (E)arnings

•   (L)iquidity

•   (S)ensitivity to market risk

In terms of the FDIC’s Safety and Soundness scale, for example, factors are rated from 1 to 5, with 1 being the highest and best (strong), and 5 being the lowest and worst (critically deficient).

Other companies use their own proprietary ratings systems. For example, for its credit-worthiness evaluations, Fitch uses a combination of letters and numbers, assigning ratings like F1+ and AA- (in this system, a grade of F is actually good).

Bank Safety and Soundness Ratings

Government and credit rating agencies have developed rating systems in order to vet the safety and soundness of banks, including any specific issues that could pose a credit risk.

A bank’s safety and soundness may be determined by a combination of several different factors that make up the overall health and viability of a bank. Often, a critical factor for this is evaluating how well the bank can handle economic fluctuations.

Bank Health Ratings

One aspect of bank ratings is how healthy a bank is. This can include things like the amount of liquidity they have in relation to their total customer deposits, as well as how secure their upper management structure is.

Bank Safety Ratings

Another facet to consider is the safety of a given bank. While a bank’s health and safety are correlated, they are not quite the same thing. Remember too that the FDIC and NCUA (National Credit Union Administration) insure deposits at most banks and credit unions, respectively, in the United States, should a rare worst-case scenario of a bank failure come to pass. The money in your checking account and other types of deposit accounts would be covered.

Recommended: FDIC vs SPIC: What’s the Difference?

Why It’s Important for Your Bank To Be Healthy

Broadly speaking, the health of the banks in the U.S. is an important factor in the overall health of the economy, which is one reason they’re monitored carefully. Credit ratings can also be an important measure of a bank’s health for both potential investors and consumers. For example, the safety of checking accounts is something to be aware of in one’s daily banking life.

However, it’s not the only thing that you should consider when opening up a new account. The interest rate a financial institution pays on deposits, how convenient the bank is, and its overall account features are probably more important for most people.

Because the United States government (through the Federal Reserve and FDIC) takes an active role in supervising the banking industry, most of the major banks you might consider are likely to be sufficiently healthy. However, you may want to delve in to make sure.

Checking Your Bank’s Rating

It’s important to feel confident that your money is secure with the bank you choose — nobody wants to put their money somewhere where it might not be safe. Fortunately, the U.S. government actively supervises banks for their safety and soundness and the possibility of credit risk.

Before opening up a checking account or savings account, you might want to check your bank’s credit worthiness rating. You can search for these at the Fitch Ratings website. However, government agencies such as the Federal Reserve and FDIC do not publish their ratings, and other rating agencies may limit access to their rating information to paid subscribers.

Bank FDIC Insurance

Bank ratings are important for transparency in the health of any one bank as well as providing insight into issues that need to be resolved. But it’s also important to know that most banks are insured by FDIC. Deposits at FDIC-insured banks are insured for up to $250,000 per depositor, per account ownership category (such as single, joint, or trust account), per insured institution. So unless you have more than that amount at any one bank, your money is guaranteed by the U.S. government in the very unlikely event that your bank fails.

What’s more, if you do have more than $250,000 to put in a bank, some financial institutions have extended insured deposit programs1. This allows them to insure a higher amount by partnering with other banks to hold your funds, with no single account topping the $250K figure.

Opening a Bank Account With SoFi

If you’re looking for a secure place to keep your money, see what SoFi offers.

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What is a good health rating for a bank?

Different rating agencies have different scales for rating how safe and sound a bank is. The CAMELS ratings used by government agencies go from 1 (strong) to 5 (critically deficient), while Moody’s ratings go from Aaa at the top level to C at the low end.

How do you find out the rating of a bank?

You can check Fitch Ratings’ website to find out the creditworthiness rating of a bank, but otherwise, you may not be able to access this kind of data. The government agencies that evaluate banks do not make their ratings public, and some other private agencies may only publish their ratings to paid subscribers.

Who rates banks?

The FDIC and Federal Reserve are two government agencies that oversee financial regulations concerning banks and financial institutions. These agencies use the CAMELS ratings to help assess how secure and healthy banks in the United States are. Other credit agencies such as Standard & Poor’s, Fitch, and Moody’s also rate banks using their own proprietary rating systems.

Are CAMELS ratings public?

CAMELS ratings issued by the government are not public record. In fact, the CAMELS rating of any particular bank as well as its examination report may not be disclosed to unauthorized users. Other institutions may disclose or publicize their own bank ratings, which are often calculated based on data that is publicly available.

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