Financial Health Ratings of Banks

dtconroe

In this period of looking at riskiness of Banks, and determining which banks to use for deposits in such things as CDs, I thought it may be of some interest to look at information associated with Financial Health Ratings of Banks. At Schwab, there are several banks offering 1 year CDs for 5.15%, but their Financial Health Ratings vary greatly between each bank.

See the excerpt below:

"The DepositAccounts.com Health Rating"

"As one of the most comprehensive online publications dedicated to consumer banking and deposit product information, DepositAccounts.com covers every federally insured bank and credit union to track around 275,000 deposit rates. Prompted by the global financial crisis in 2008, many people took a second look at the health of their financial institutions. While the FDIC and National Credit Union Administration (NCUA) maintain a watch list of banks and credit unions that may be at risk of failing, these lists are not available to the public but their quarterly raw financial numbers are. DepositAccounts uses this data to evaluate the financial health of over 10,000 banks and credit unions with some of these key factors:

Capitalization
Capitalization is a bank or credit union’s available capital, which is determined by subtracting liability value from their asset value.

Deposit Growth
As people continue to put money in a bank or credit union, that growth increases the money available to keep a strong balance sheet. Especially if the total deposits have been increasing over time, this is a high indicator of confidence in the financial institution and its stability.

Texas Ratio
The Texas Ratio was developed to easily measure the status of a financial institution’s credit troubles, where the higher ratios warn of severe credit problems. The number is determined by comparing the total value of at risk loans (loans that are more than 90 days past due and not backed by the government) to the total value of funds the bank has on hand to cover those loans."

Personally, I look at this information closely before I choose to invest in a CD at any given bank. I am aware that FDIC insures banks, up to a limited deposit amount, and I stay below those deposit amounts with my CD investments, but I don't want the drama of having a CD in a bank that has a higher risk and a lower Financial Health Rating.

yogibearbull

Bank ratings and supervision have to adjust to the underwater HTM Treasuries/MBS and CREs on bank balance sheets. These have been the cause of recent bank runs and many more are vulnerable. I learned recently that this problem of not/delayed mark-to-market is a unique US problem. In Europe, things have to be marketed-to-market ASAP, and while some of them looked weak in the past, suddenly, they look relatively better.

Anyway, don't let the guard of the FDIC/NCUA coverage down. There are many tricks already for expanding the coverage - differently titled a/c at the same bank (individual, joint, trust, IRAs, CDs w/different PODs, etc) and using several banks.

larryB

Thanks for this post.

catch22

@larryB et al

Thank you.

Decent site for data. I checked a few names I'm familiar with for a test drive. The search box with institution name is the start point. THEN the health view tab for the cool stuff.

DepositAccounts.com

larryB

I checked the rating for the late great First Republic Bank. Still highly rated.

catch22

Well, yes. This is a problem with the data at this time; as it is stale. But, a look going forward will be interesting. I checked our c.u. directly with data posted to the state as of December, 2022. One item I found that is 'good' is that no 'HTM' (hold to maturity) was in the 'cash' accounts. The cash wasn't identified, with my presumption being the c.u. is holding short duration issues vs long term stuff.

Old_Joe

Very good info here. Thanks to all.

yogibearbull

HTM Treasuries/MBS are in longer-dated or investment portfolio. They won't be in the "cash" portion. Also, the CUs are much simpler in structure than banks. I haven't read about this being an issue for the CUs.

dtconroe

larryB said:

I checked the rating for the late great First Republic Bank. Still highly rated.

Yep, that is discouraging. The data was from 4th quarter 2022.

Crash

larryB said:

Thanks for this post.

Me, too.

dtconroe

Just a note that in addition to the actual Financial Health Rating, there is a description/overview description of the bank being reviewed. You should be looking at both the Rating and the Overview of the Bank. For example, with Republic Bank, this is that review as part of the Financial Health Rating:

"Related Posts
Goodbye First Republic Bank -- Hello Chase Bank - 5/1/2023
Chase won the bidding. Chase has assumed all the deposits of First Republic Bank. All First Republic accounts are now Chase Bank accounts.

First Republic Bank And Signature Bank CDs With Pre-Commission Y-T-Ms Up To 6.824% - 3/15/2023
Numerous CDs issued by First Republic and Signature are available in the secondary market.at Vanguard. They tend to have short maturity dates, so commissions will significantly reduce the yields to maturity. They are all trading at discounts. The FDIC would pay off at par. But once the FDIC transmits funds to the brokerage, it will be a while before the funds appear in customers' accounts."

msf

Here's that post by a reader on depositaccounts.com:
https://www.depositaccounts.com/banks/first-republic-bank.html#promo52225

Vanguard and Fidelity and probably many others charge $1/$1,000 face value commission for CDs and bonds traded on the secondary market. Their websites will tell you the final YTM before you place your order.

The poster doesn't say why a broker would take any longer to distribute money received from the FDIC than money received from banks upon maturity of brokered CDs. Further, if JPMorgan Chase is maintaining those interest rates then it is assuming responsibility for the CDs. OTOH, if Chase is not maintaining those rates, then payout would be "immediate" (i.e. one would be exercising one's right to redeem the CDs w/o penalty rather than accept a lower rate going forward). But that would mean a lower yield - basically just the discount less the commission.

yogibearbull

See FDIC FAQs on First Republic & brokered CDs. Delays may be because only the broker has customer details & Cede may be involved as an intermediary.

"WHAT HAPPENS WITH MY BROKERED DEPOSITS?

All brokered deposits, excluding the Cede & Co deposits, have been assumed by JPMorgan Chase Bank, N.A. If you are a customer who has a First Republic Bank deposit through a broker, you must contact your broker with any questions."

https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/first-republic-faq.html

Cede/DTC https://en.m.wikipedia.org/wiki/Cede_and_Company

msf

Delays [on First Republic brokered CDs] may be because only the broker has customer details & Cede may be involved as an intermediary.

That doesn't seem to differ from any other brokered CDs: "CDs ... are evidenced by a Master Certificate of Deposit representing individual CDs in $1,000 denominations and held at The Depository Trust Company (“DTC”) or directly by the broker."

https://www.sewkis.com/publications/fdic-requirements-for-pass-through-deposit-insurance-in-brokered-deposit-programs/

Under normal circumstances it is the bank not the FDIC making payments, but otherwise the cash flows look the same:

The financial institution [bank] makes principal and interest payments to the Depository Trust Company (DTC). DTC is responsible for passing the principal and interest to the broker-dealers. The broker-dealer is responsible for passing the correct amount of principal and interest to the owners of the Certificates.

https://capitalmarkets.fidelity.com/brokered-certificate-of-deposit-underwriting

Cede & co is the agent of DTC so its involvement should not materially affect speed of payment. In any case, it is primarily a distraction from the main point. Since its role is to serve as legal owner (DTC nominee) of securities, and CDs are not usually securities (see Sewkis link above), this is really getting into the weeds. (Not to mention that none of this is specific to FDIC payments.) But I'll go along for the ride if you think there's something significant here.

----

The basic relationship between brokered CD depositors, issuer banks, and brokers is not dissimilar to the way fund supermarkets work. Brokers do all the customer bookkeeping, aggregate their customers' investments in a given fund, and invest the aggregated moneys in that fund through an omnibus (unified single) account. Dividends and redemption payments are passed from the fund to the broker who distributes them to the owners appropriately.

Delays may be because only the broker has customer details. Funds were slow to participate in fund supermarkets precisely because these details were being kept from them - they lost direct access to their customers.

davidrmoran

Meanwhile, this asshole

https://thehill.com/business/banking-financial-institutions/4006252-sherrod-brown-blasts-svb-chief-over-bonuses-stock-sales/

sma3

Anybody figured out how much he lost when SVB stock went to zero? Millions, but he obviously sold millions first.


Gee I knew interest rates were going higher in 2022, and I sold LT bonds and bought ST ones.

When was the first post here about the great opportunities in ST treasuries ? Maybe Becker should be reading MFO