How It Works

IDC's CAMEL describes the 24 financial ratios used to compute the one-number summary rating of bank safety. Each financial institution evaluated has an analysis of financial ratios and a one-number summary rank. Ratings range from 1, the lowest, to 300, the top grade attainable. The result is a quick, at-a-glance financial strength assessment that promotes direct and straightforward comparisons between any bank, savings institution, or credit union. IDC's unique "CAMEL" analysis utilizes financial ratios that have a significant impact on the quality of financial institutions:

  • Capital risk is determined by Tier I capital as a percent of Tier 1 assets and as a percent of risk-based assets. Tier I & II capital as a percent of risk-based assets (risk-based capital ratios) measures credit and interest rate risk as well as estimates risk in the asset base.
  • Adequacy of Capital and reserves measures the levels of delinquent loans, non-accrual loans, restructured and foreclosed assets relative to loan loss reserves and capital.
  • Margins are the best measurement of management. Margins represent the spreads between 1) operating profit and net operating revenues, 2) after-tax return on earning assets less after-tax cost of funding, and 3) the return on equity (ROE) compared to estimated cost of equity capital (COE).
  • Earning returns measure the success of the bank's operating and financial strategies. Returns on earning assets (ROEA) before funding costs measures a bank’s management of operations. Returns on financial leverage (ROFL) measures financial management and the degree to which a bank uses deposits, borrowing and debt to fund earning assets not funded by adjusted tangible equity.
  • Liquidity measures 1) balance sheet cash flow as a percent of Tier I capital and 2) loans compared to stable deposits and borrowings plus estimated unused lines of credit at the Federal Home Loan Bank.

Each of the 24 financial ratios used to calculate a summary rating of bank safety has absolute multiples or relative weights to the universe of competing institutions.