The financial condition of a bank depends on a number of factors, from the balance sheet to the income statement.
The best way to understand the impact of all these factors is to consider them relative to a defining factor for your particular institution, which ranges from asset size to liquidity and components of profitability. The result of such an analysis with a series of ratios tell us something about how well managed a bank is, and how well it’s positioned to deal with potentially adverse economic or financial conditions, or to profit from favorable ones.
IDC Financial Publishing (IDCFP) goes a step further. We consider all of these ratios, and weight them to reflect their relative importance to the health of a bank. Through this we’ve devised a method of producing one overall rank number that ranges from 300, the highest, to 1, the lowest.
Each quarter, IDCFP computes a rank for every financial institution in the country that reports to the federal government. This number allows direct comparison of an institution with any bank or credit union, in terms of financial soundness.
With our assessment and analysis, we aim to understand the potential risks to a bank and identify areas of potential negative outcomes that could arise in the future. IDCFP has been rating the safety and soundness of banks, savings institutions, and credit unions since 1985, establishing ourselves as a longstanding and reliable source.
There’s no mystery; we tell you how we do it.
IDCFP is not the only ranking service that purports to rate banks. But we are the only ones who take the mystery out of the process, and show our clients exactly how we derive our ranks. You can compute the rank for your own bank, using the step-by-step instructions provided in our “Instructions for Calculating the Rank” and illustrated in the “Components of Rank Report.”
We have a remarkable track record of being able to identify deteriorating or improving performance many months, and sometimes years, before it becomes apparent to less-sophisticated ranking companies. For example, from 1990 to 2018, there were 1,419 failures of banks. Of these, 90% (1,271 banks) were ranked less than 125 by IDC Financial Publishing up to 17 months before failure. Further, 73% (1,033 banks) were rated less than 125 by IDCFP up to 29 months before a collapse. Using the group of banks which issued brokered CDs, IDCFP’s ranks not only predicted bank failure, but also forecast the larger banking crisis of 2008 to 2009. As a result, IDC's ranks have and remain the standard for those who need to know about the health of a given institution.
John E Rickmeier, CFA