How to Find a Safe Bank or Thrift for Certificates of Deposit Investment With CAMEL Rating Analysis

www.idcfp.com

The sharp rise in loan delinquency among the countries most credit-worthy or prime borrowers, coupled with escalating commercial property losses, increases the difficulty in finding a safe bank or thrift for your deposits.

The length and depth of the recession, coupled with rising unemployment, reduce the ability of the country´s prime or most credit-worthy borrowers to meet their loan repayment requirements. Since prime loans account for 80% of U.S. bank exposure to mortgages and credit cards, the new wave of prime delinquencies creates new risks for U.S. financial institutions.

Prime 30-day or more mortgage delinquencies and foreclosures rose to 9.4% of total prime mortgages as of June 2009, up from 8.6% in the first quarter and 5.4% a year earlier. IDC projects the prime delinquency and foreclosure level to increase to 12.6% in 2010.

The second problem for U.S. financial institutions is commercial property loan delinquency, rising from 6.5% of property loans in March 2009 to 7.9% in June and an estimated 12.0% in 2010. This could raise the losses on commercial property loans for medium and small U.S. banks and thrifts to $200-$230 billion.

IDC Financial Publishing, Inc. (IDC) ranked 8,266 banks and thrifts for the period ending June 30, 2009 with financial information supplied by the Federal Deposit Insurance Corporation (FDIC) and Office of Thrift Supervision (OTS). Banks and thrifts rated satisfactory to superior numbered 7013, or 85% of the total.

Currently, bank and thrift deposits are insured up to $250,000 per individual by the FDIC. On January 1, 2014, insurance coverage decreases to $100,000 for individual accounts and $250,000 for certain retirement accounts. IDC doubts the coverage for individuals will be reduced in 2014, thereby, insuring all bank and thrift accounts up to $250,000 beyond January 1, 2014.

IDC ranks 1,273 banks and thrifts less than 75 on a scale of 1 (the most risky) to 300 (the highest rating). These high-risk financial institutions, based on IDC´s CAMEL rating, are subject to failure. Since 1989, over 98% of bank and thrift failures were rated less than 75 prior to failure. Of the high risk banks and thrifts, 492 institutions are ranked 1 (the lowest rating), indicating eminent risk of failure. Of the 92 failures in 2009 through September 11, 81 were ranked 1 prior to failure.

IDC evaluation of banks and thrifts with its unique CAMEL rating analysis is considered the bank standard by those offering brokered certificates of deposit. The capital (C) ratios indicate the level of strength of the institution. The adequacy (A) of capital and loan loss reserves to cover delinquent and nonperforming loans measures loan risk. Margins (M) measure management´s ability to earn sufficient income. Earnings (E) from operations are compared to earnings from leverage to judge the success of the bank or thrift´s profit plan. Liquidity (L) measures the institutions ability to meet outstanding deposits and borrowings.

IDC Financial Publishing Inc., using its unique CAMEL rating analysis, can assist you in finding a safe bank or thrift for your deposits. For more information, review the IDC Financial Publishing website www.idcfp.com or call 1-800-525-5457

Written by John E. Rickmeier, President of IDC Financial Publishing, Inc. John has analyzed all banks and thrifts reporting to the FDIC and OTS since 1984.