As a consumer, your personal credit can affect many things like rates you get on loans, whether you get a job, and qualifying for a home or auto loan. Well, many don’t know that banks also have credit ratings! Bank credit ratings are an estimate of how likely the bank is to default on its debts and go out of business.
Agencies like Moody’s Investors Service and Standard & Poor's, issue credit ratings for banks and other financial investment institutions. These ratings are normally given as letter grades with an AA or AAA rating being the highest rating. Just like your personal credit rating, a high rating doesn’t guarantee a bank won’t default, it just means that default is highly unlikely.
Most consumers don’t need to worry about it so much if your bank is insured by the FDIC which insures bank accounts up to $250k per depositor, per account (see FDIC.GOV for more information). Credit unions have a similar insurance for their accounts provided by the NCUA (National Credit Union Administration) insured at the same levels as the FDIC.
The most common cause of bank failure occurs when the value of the bank's assets falls below the market value of the bank's obligations to its creditors and depositors. This might happen because the bank loses too much on its investments, especially if it loses a large amount in one area, like distressed mortgage assets. Think about the last mortgage crisis and how a few large banks failed.
Some ways banks help offload these assets off their books is by setting up their own distressed asset division, selling off those distressed assets to hedge fund managers and other note investors in the distressed note business. This allows the bank to keep their performing assets that are producing more favorable returns that exceed their obligations and keep their credit rating higher. They don’t always keep only the performers though, there is still a healthy portion of REO’s and distressed assets that some banks keep.
For more information on notes or if you have notes to sell, reach out to Zee at Awanna Holdings, LLC (571)659-5005. ©Awanna Holdings, LLC (Feb 2020-8), email@example.com/www.awannarandh.com