Letter Grade Safety and Soundness Ratings Added to IRA Bank Monitor
Institutional Risk Analytics has added explicit letter
rating grades for safety and soundness calculated for all US banks and bank
holding companies. The A-F grades are displayed in both the individual IRA Bank Cart Reports as well as in all of the
profiles in the IRA Bank Monitor professional analytics tool.
Ratings are available for both individual bank units and bank
holding companies, which are shown in a "bank only" roll-up format to enable
apples-so-apples comparisons of large and small bank and
thrift institutions. These fundamentals-based ratings are focused not on
projections of future earnings or equity market volatility, but instead on
the safety and soundness of the depository. The five ratings categories are
shown below:
IRA's Letter Grade Rating System for all
US Banks
A+ -- Overall Bank Stress less than
1995 1.0 index baseline. Banks with this grade tend to exhibit stong metrics
across the board.
A -- Stress slightly less than the
industry average. Bank business practices are much more varied than people
realize. Institutions in this category exhibit business model choices that allow
them to operate with improved cushion against current systemic threats.
B -- Stress slightly above the
industry average. These banks begin to show sensitivity to systemic stresses but
still have a business model that offers a some degree of flexibility to resist
crisis forces.
C -- Stress levels moderately above
industry average. In these banks, one or more key metric areas begin to show
degradation(s) indicating a need for active attention by officers and directors.
D -- Stress indicators well above
the industry average. These institutions tend to show significant degradation in
one or more of the key areas of measurement. Concern has likely begun to garner
the attention of parties outside the bank.
F -- Stress levels at the extreme
range above industry average. At this degree of stress, one or more of the key
elements of the business model has reached failure mode. What concerns exist are
probably already public.
The factors included in the ratings are based on IRA's Bank Stress Index, which include:
* Profitability
* Lending Default Experience
* Capital Adequacy
* Loan and Unused Commitment Exposure
* Operational Efficiency
These classical measures of bank
soundness are brought together in the Bank Stress Index, which is based on an
explicit census of all active FDIC reporting depository institutions. As of
Q3 2008, the average stress level for the entire US banking industry was 1.5 vs.
the 1.0 index benchmark for 1995. The new ratings have been
implemented retroactively for all current subscribers to the IRA Bank Report service and are displayed at
the top of the reports for Q3 2008.
Institutional Risk Analytics provides
customized risk management solutions
and advisory services to
global enterprises. A division of
Lord, Whalen
LLC, IRA was
established in
2003 by Dennis Santiago
and Chris Whalen.
Our mission:
deliver transparent,
cost-effective fundamental
analytics systems tailored to the
needs of
sophisticated professionals, from individual fund
managers to the global enterprise.
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