Definition of Bank rating:
A rating of the safety and soundness of a bank, in terms of a formula developed by the Federal Deposit Insurance Corporation (FDIC). The FDIC rates banks on a scale of 1 to 5. Ratings of 1 and 2 indicate that a bank is sound. Ratings of 4 and 5 indicate that a bank has serious problems. A rating of 5 is assigned to banks that have a high probability of failing within the next 12 months.
A bank rating will usually assign a letter grade or numerical ranking, based on proprietary formulas. These formulas typically originate from the bank’s capital, asset quality, management, earnings, liquidity, and sensitivity to market risk (CAMELS).
The Federal Deposit Insurance Corporation (FDIC) and/or other private companies provide a bank rating to the public on its safety and soundness. This applies to banks and other thrift institutions.
Meaning of Bank rating & Bank rating Definition