Risk Measurement

IDC Financial Publishing, Inc. identifies risk measurement with several financial ratios, assigns a weight factor to each based on its relative importance to the health of the institution, and then combines the overall view into a numeric summary rank. Ranks range from 1 (the lowest) to 300 (the highest).

Since 1985, we have compiled and stored all the risk measurement data necessary to analyze and rank financial institutions in our database. With this, we can provide historical information for any given institution back to 1985. This makes it more cost-effective for customers requesting history on their institution or peer group.

IDC's unique method of evaluating financial institutions is based on the acronym CAMEL-Capital Requirements, Adequacy of Capital, Margins, Earnings Returns, and Liquidity. Many analysts ignore the "M" in CAMEL, while IDC determines management's performance based on margins.

In addition to performing a CAMEL ratio analysis, IDC calculates the Net Operating Profit After-tax Return on Equity (NOPAT ROE). The NOPAT ROE equation differs from the traditional ROE equation by not subtracting the cost of funding so early in the analysis. The NOPAT ROE equation allows managers to truly compare operating and, separately, financial returns with their peers.

IDC Financial Publishing, Inc. provides risk measurement databases for commercial banks, bank holding companies, savings institutions, and credit unions.

Probability of Failure

IDC estimates the probability of failure for institutions at each level of rank from 1 (potential failure) to 300 (highest rank attainable), which is updated quarterly. Of the 531 bank failures since 2003, 94% were ranked 1, and published by IDC prior to the FDIC failing the bank. The FDIC delays recognizing failures for long periods, months and sometimes years later, attempting to find a solution, but mostly to protect the loss from being realized in the FDIC insurance fund. IDC, however, recognizes the failure when an institution’s rank of financial ratios turns negative. We then replace the negative rank value with a rank of 1. Unlike our competitors, IDC is the only source for an accurate estimate of probability of failures, an estimate that is based on the rank at failure or the rank available at IDC’s recognition of potential failure.