Bank CAMELS
Bank safety ratings based upon financial institutions’ Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity (CAMELS)

Bank Safety Rating Definitions

Our ratings are derived purely based upon statistical analysis. Mimicking the U.S. supervisory rating structure, we divide all financial institutions into 5 rating categories. However, our numeric rating designations are in the reverse order of the regulatory numerical ratings.

Rating 1, designated with one star , is the worst category. Our back testing shows roughly 8% of the banks rated 1 will fail within the next one year. We recommend depositors to move away from these banks as soon as possible.

Rating 2, designated with two stars , is the category for weak banks. Our back testing shows roughly 0.4% of the banks rated 2 will fail within the next one year. We recommend depositors to avoid banking with these institutions.

The FDIC maintains a “Problem Bank List”. Even though individual banks on the list are not released to the public, the total number of banks on the list is publicly available (click this FDIC press release for an example). Our Category 1 and 2 ratings are highly correlated with the total numbers of banks on the “Problem Bank List”.

Rating 3, designated with three stars , is for acceptable banks. Our back testing shows roughly 0.03% of the banks rated 3 will fail within the next year.

Rating 4, designated with four stars , is for good banks. Most of the banks fall into this category. Our back testing shows roughly 0.004% of the banks rated 4 will fail within the next year.

Rating 5, designated with five stars , is for strong banks. Banks in this category can still fail, but the rate is extremely low. Our back testing shows roughly 0.002% of the banks rated 5 will fail within the next year.

For historically failed banks, a very small portion of them were failed due to fraud. Our statistical models are less effective in detecting this kind of failures. Still, these fraud cases are included in our statistical analysis.

Given our ratings are statistical based, if some factors is unavailable for some banks, the corresponding rating may also become unavailable. For new banks, the ratings will be assigned even if there is only one quarter of data, but the bank rating might be less stable. We provide detailed information for each bank and all the data availability can be seen from the detail pages.

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