Whether Times are Good OR Bad, Our Weiss Bank Ratings Can Help You

Times are good for banks right now. The industry is booming, loan losses are low, and profits are strong. But it wasn’t too long ago that banks were failing left and right, the government was bailing like mad, and losses were through the roof!

So how can you find a safe and stable bank that will perform for you in good times AND bad? By using our Weiss Ratings! Our goal is to give you an unbiased and honest opinion about your current bank, or any bank that you might want to do business with in the future.

The Weiss bank safety ratings are calculated based on a complex analysis of hundreds of factors that are synthesized into five indexes: Capitalization, Asset Quality, Profitability, Liquidity and Stability. Each index is then used to arrive at a letter grade rating.

This is what those indexes analyze:

1. Capitalization Index – gauges the institution’s capital adequacy in terms of its cushion to absorb future operating losses under adverse business and economic scenarios that may impact the company’s net interest margin, securities’ values, and the collectability of its loans.

2. Asset Quality Index – measures the quality of the company’s past underwriting and investment practices based on the estimated liquidation value of the company’s loan and securities portfolios.

3. Profitability Index – measures the soundness of the company’s operations and the contribution of profits to the company’s financial strength.

4. Liquidity Index – evaluates a company’s ability to raise the necessary cash to satisfy creditors and honor depositor withdrawals.

5. Stability Index – integrates a number of sub-factors that affect consistency (or lack thereof) in maintaining financial strength over time. These include 1) risk diversification in terms of company size and loan diversification; 2) deterioration of operations as reported in critical asset, liability, income and expense items, such as an increase in loan delinquency rates or a sharp increase in loan originations; 3) years in operation; 4) former problem areas where, despite recent improvement, the company has yet to establish a record of stable performance over a suitable period of time; and 5) relationships with holding companies and affiliates.

A weak score on any one of these indexes can result in a low rating. That’s because financial problems can be caused by any single factor, such as inadequate capital, non-performing loans and poor asset quality, operating losses, poor liquidity, etc.

As you can see from the current ratings distribution below, times are good. More than 65% of the banks we track are rated either “A” or “B”.

But you might be wondering if you can rely on our Ratings even when that’s not the case. The answer is “Yes.” As I pointed out before, our banking model is very accurate in predicting any potential problems that may arise within a bank which could eventually lead to a failure. Almost without exception, failed banks were rated poorly by Weiss a long time prior to them going out of business.

The bottom line is that our bank model looks at a variety of factors, and accounts for current and historical trends. That’s how we provide you with accurate and reliable safety ratings, in both good times AND bad. So be sure to check your bank safety rating on the Weiss Ratings website and see what we say about it.

Think Safety,

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.