What's a Bank HEALTH Report?

The BankFox HEALTH Report is our proprietary analysis of the financial stability of a bank based on the most recent data reported by the FDIC and other public sources. The purpose of the report is to provide consumers with a basic overview of the general financial health of their bank.

The acronym HEALTH stands for the six items we think are most valuable and accessible for a consumer to know in assessing their bank’s financial health:

"H" is for Holding Company: Before assessing a bank’s health, BankFox looks to see if it’s owned by a "Holding Company" that owns other businesses. If the holding company owns other banks, we do an aggregate analysis of all the banks within the holding company. If the holding company owns foreign or non-bank businesses, we note this information and may adjust the score for the bank if financial results of the holding company could affect its condition. However, the underlying score reflects the financials of the bank, not the holding company.

"E" is for Earnings Success: Healthy banks are generally profitable and earn money. To assess the relative profitability of banks, BankFox uses the statistic "Return on Assets" which equals the earnings (net income) of a bank, divided by its total assets. This number measures how profitable the bank is for its size. Banks with higher ROA tend to be healthier banks.

"A" is for Available Equity: Equity is the difference between what a bank owns (its assets) and what it owes (its liabilities). This metric (sometimes referred to as the bank’s capitalization or available capital) is good for determining how much of a cushion the bank has to pay back depositors if it loses money. BankFox uses a metric it calls "Available Equity" which is the same as equity except it gives the bank credit for reserves they've set aside for potential future losses, and removes "goodwill," an asset that would be hard to use to pay depositors if the bank began to have serious trouble.

"L" is for Loan Quality: BankFox looks at what percentage of a bank’s loans are non-current, meaning that the borrowers are 90 days or more overdue in making their payments. Generally banks are less healthy if more of their loans are delinquent because bad loans ultimately can cause the bank to lose money in the future.

"T" is for Third Parties: Occasionally banks turn to third-party brokers (like Ameritrade or Schwab) to get extra deposits beyond their core customers. Generally banks must pay higher interest on "brokered deposits" and have no way to build long-term profitable relationships with these depositors. Given the disadvantages of brokered deposits, the FDIC has determined that an increasing or high reliance on them can be a sign of bank weakness, and could cause liquidity problems.

"H" is for Historical Scores: Although a bank's health in the past does not necessarily determine its health in the future, it can still be useful to see a bank’s overall health scores for the past few years to gauge whether its condition has changed much over time. For that reason, the final part of the report includes a history of how the bank has scored over the past three years.

BankFox determined that the numbers above are important in assessing a bank's health by running a logistical regression analysis on historical bank failures, matching failed banks to ones of similarly sized assets that did not fail and seeing which variables were significant. From that regression, we developed a model based on the four middle variables above (our BankFox T.A.L.E.) that yields a bank’s overall health score.

This analysis is a very simplified version of the one that the FDIC reports that they use to determine which banks are problematic and need to be monitored closely to protect depositors. As with any analysis there are limitations, so our calculations should be viewed as an informed interpretation of bank data, but not a definitive measure of whether a bank will fail.

Should I panic if my bank scores low?

No! As long as your bank is FDIC insured and you have less than the deposit insurance limits (currently $250,000 per depositor) with your bank, your accounts are insured by the U.S. government and you should not lose any money even if your bank fails.

In fact, when a bank fails, most depositors at the bank are completely unaffected since the government takes over the bank immediately and continues to run it, or immediately sells it to another bank. See this 60 Minutes report on the FDIC to watch what happens when a bank fails.

Nevertheless, there are still many reasons to monitor your bank’s health as it may affect the overall quality of service they offer to you. For instance, an unhealthy bank may be less likely to invest in new branches, ATMs, or better web tools. Being unhealthy could also hurt the bank’s ability to retain informed customer service reps or make the bank more likely to raise fees. On the other hand, an unhealthy bank may be more likely to pay higher rates since they may need access to more money.

Overall, bank health should be a consideration, but should not be a cause for panic in selecting your bank.

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