Bank Credit Risk Rating
Credit risk involves the possibility that a borrower will not meet the terms of a lending agreement. A bank credit risk rating considers the ability of a bank to repay debt obligations for domestic or foreign currency based on the risk of its debt and current book of business. Investors and bank customers use credit risk ratings to determine the financial soundness of the bank. There are several rating agencies commonly used for these ratings, and each has a different scale for scoring bank credit risk.
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Moody's
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Moody's bank deposit ratings system includes the aspects of bank risk that are part of the performance of the bank. The system is an opinion of the ability to timely pay obligations and has a top rating of Aaa -- considered an institution of top financial soundness. The Moody's scale moves downward in alphabetic increments with the next level being Aa, A, Baa, Ba, B, Caa, Ca, and the worst rating level of C. Banks are considered to be less financially sound the further down the credit risk scale they go.
Standard & Poor's
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Standard & Poor's has a ratings service similar to Moody's, representing the company's opinion of whether the institution can meet its obligations in a timely manner and with full payment. Standard & Poor's has the more familiar rating scale of AAA as the highest, with downward alphabetical increments such as AA, A, BBB, BBB-, BB+, and BB onward to the final low position of a D-rated institution. Under the Standard & Poor's scale, a D rating indicates that the bank has already started to default on its obligations.
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Fitch
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Fitch contains a disclosure in its ratings information that it does not assess any risk other than credit. Fitch uses a scale similar to Standard & Poor's, with the highest credit risk rating beginning at AAA with lowering alphabetic increments to the lowest of D. A bank with a D rating has already entered into a default situation where, under Fitch's opinion, the company will eventually cease business operations.
BankRate
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While not a major ratings service, Bankrate.com has a trademarked "Safe & Sound" rating system available through its website, allowing the user to look up institutions by name. The system has a star rating from one to five stars, with five the superior number. The system also attaches pertinent at-a-glance financial information regarding the health of the financial institution.
Annual Reports
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Financial institutions have an obligation to create annual financial reports regarding their operations, including credit risk and loan-loss provisions. Information on a particular institution is typically on the company website under shareholder services information with credit risk rating publications from the three major rating companies, Moody's, Standard & Poor's, and Fitch.
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