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Money and Markets: Investing Insights

Weiss Ratings: 74% of U.S. Banks Vulnerable to Rising Short-Term Interest Rates

JUPITER, Florida (April 20, 2011) — Nearly three quarters of the nation’s banks are vulnerable to rising short-term interest rates, according to a new study by Weiss Ratings, the nation’s leading independent provider of bank, credit union and insurance company financial strength ratings.

In a study of 6,949 banks, Weiss found that a total of 5,165, or 74%, are vulnerable to rising interest rates, due largely to liabilities with rates scheduled to reprice within one year that were far greater than assets with rates scheduled to reprice within one year. This measure, called the negative gap ratio, indicates that the banks will be at a disadvantage in a rising interest rate environment, as their cost for deposits and other borrowings rise more quickly than their income on loans and investments of a similar maturity.

“With short-term interest rates at historic lows and ongoing speculation about when they will rise, it’s important for consumers to understand that any future rate rise will put the profitability of many financial institutions at risk,” said Gene Kirsch, senior banking analyst at Weiss Ratings. “In this environment, consumers may be drawn to the highest rates paid on deposits, but they mustn’t forget the importance of financial strength when selecting a bank or thrift.”

Large banks ($10 billion or more in assets) most vulnerable to rising interest rates based on their extremely negative one-year gap ratios include:

In contrast, large banks ($10 billion or more in assets) with positive one-year gap ratios that are well positioned for rising short-term interest rates include:

Regionally, Weiss’ study found that the Northeast and Mid-Atlantic have the highest concentration of banks most vulnerable to a rise in short-term interest rates with 82.7% and 80.0% respectively. In contrast, states in the West region have the lowest percentage (58.5%) of institutions most vulnerable to rising short-term rates.

Institutions’ Vulnerability to Rising Short-Term Interest Rates by Region

To view the 1-year gap ratio of all U.S. banks with $10 billion or more in assets as well as a detailed explanation of the gap ratio and its effect on profitability, individuals can visit http://www.weissratings.com/ratings/banks-vulnerability-to-rising-interest-rates.aspx.

In addition, to view Weiss Ratings’ free list of the weakest and strongest banks and thrifts, consumers should visit www.weissratings.com/banklists.

About Weiss Ratings

Weiss Ratings, the nation’s leading independent provider of bank, credit union and insurance company financial strength ratings, accepts no payments for its ratings from rated institutions. It also distributes independent investment ratings on the shares of thousands of publicly traded companies, mutual funds, closed-end funds and ETFs.

1 One-year gap ratio is defined as assets with maturities one year or less minus liabilities with maturities of one year or less as a percentage of total assets (which are exposed to changing interest rates).
2Connecticut, Delaware, Massachusetts, Maine, New Jersey, New Hampshire, New York, Pennsylvania, Rhode Island, and Vermont.
3District of Columbia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Virginia, West Virginia.
4California, Colorado, Hawaii, Nevada, and Utah.

{ 1 comment }

RICK Friday, April 22, 2011 at 1:29 pm

THANKS FOR THIS GREAT SERVICE and your efforts to get the other rating agencies to have a spine.

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Weiss Research, Inc., founded in 1971, has a long history of providing research and analysis designed to empower investors with information and tools to make more informed, independent decisions along with an equally long history of public service. [More »]