PALM BEACH GARDENS, Fla. — Weiss Ratings, the independent bank and credit union safety rating company, said it has data that challenges a decision by the FCC to significantly loosen its screening standards for banks deemed qualified to provide letters of credit for its programs.
The company noted that previously the FCC accepted only banks with a Weiss rating of B- (good) or better, which would include 1,639 strong institutions.
“Now, however, under pressure from some of the nation’s banking associations, it has decided to accept any bank deemed ‘well capitalized’ by federal banking regulators,” the company said in a statement. “This includes 649 banks that currently get a Weiss Rating of D+ (weak) or lower, which represents an unacceptably high probability of future financial difficulties, based on over 20 years of historical data on bank failures.”
Added Weiss Ratings founder Dr. Martin D. Weiss in a statement, “The problem starts with the banking regulators — the Fed, FDIC and OCC. Their bar is so low that they include some of the nation’s weakest banks in their ‘well capitalized’ category.”
Weiss Ratings further noted that according to banking regulators, 99.4% of the nation’s 4,484 banks are deemed “well capitalized,” while only 0.6%, or a “meager 27,” are said to be “undercapitalized.”
‘Flies in the Face’
“This flies in the face of a key measure of bank capital — common equity tier 1 RBC — which has been going mostly down since 2019,” Weiss Ratings said. “Some of the riskier banks considered ‘well-capitalized’ include Bank of America, the nation’s second-largest bank with $2.6 trillion in assets. Not only does it have the weakest Weiss capital ratios among the nation’s 50 largest banks, but it also reports $49.7 in unrealized losses on its books for each $100 of Tier 1 capital. This means that, if, at a future date, Bank of America must realize its losses, half its capital could be gone.”
Banks in Same Category
According to Weiss Ratings, other relatively large banks in the same approximate risk category as Bank of America (a Weiss ratings of C-) include Synchrony Bank (with $114.8 billion in assets), Flagstar Bank ($97.6 billion), East West Bank ($75.7 billion), Valley National Bank ($61.8 billion), Associated Bank ($43.2 billion), Bank OZK ($39.2 billion), Prosperity Bank ($38.8 billion), Eastern Bank ($25 billion), plus 10 others with assets of more than $10 billion.
“Meanwhile, USAA Federal Savings, with $110.8 billion in assets, is in even worse shape — with an unhealthy combination of both weak capital and poor profitability,” Weiss Ratings said. “Others in the same general risk category as USAA (with a Weiss Rating of D+ or lower) include Bank of Hawaii ($23.8 billion in assets), Cathay Bank ($23.2 billion), Farmers & Merchants Bank of Long Beach ($11.5 billion) and Washington Trust Bank ($10.7 billion), plus many others.
“All suffer from severe deficiencies. Yet, all are said to be ‘financially stable’ per the FCC’s new standards,” the company added.
A Look Back
In announcing its data Weiss Ratings said that based on these same new standards, most of the large banks that failed or received a bailout during the Great Financial Crisis would have also been deemed “well capitalized” or “financially stable.” These include Bank of America, JPMorgan Chase, Wells Fargo, Washington Mutual Bank, Bank of New York Mellon, U.S. Bancorp, Capital One Financial, PNC Financial Services Group, Regions Financial, State Street and BB&T Corp (now Truist) and others, the company said.
