Ethics Metrics offers governance, compliance and risk analysis and ratings on U.S. depository institution holding companies (DIHCs) with assets above $10 billion on a subscription basis. Our reports evaluate performance on the governance and financial risks that directly impact the value of debt, equity and derivative securities.
Information asymmetry & undisclosed risks
“Regulatory oversight is established to protect depositors, the Federal Deposit Insurance Fund and the banking system as a whole, not security holders”
Our methodology provides breakthrough analytics on undisclosed risks and provides transparency through:
- Governance and performance ratings reflecting the degrees of financial performance and compliance with laws and regulations. The ratings are based on Ethics Metrics’ replication of confidential UFIRS (CAMELS) ratings for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. Ratings of 1 (best) and 2 indicate apparent compliance while ratings of 3, 4 and 5 (worst) represent apparent violations.
- The best performing DIHCs, with ratings of 1 and 2, operate in accordance with the SOX 406 Code of Ethics by complying with federal laws and regulations for safety and soundness and the securities market. These DIHCs operate on a sustainable basis as they self-insure through business cycles while generating returns for investors.
- Poorly performing DIHCs, with ratings of 3, 4 and 5, operate with unsafe or unsound practices that represent one or more material weaknesses in internal controls. These include undisclosed material misstatements, restatement risks, ineffective board oversight and fraud. They also represent events of default for interbank credit agreements and the ISDA Master Agreement for OTC derivatives. These weaknesses, when not disclosed, mislead investors.
- Compliance tests for Well Managed, Well Capitalized, Qualified as a Holding Company, Troubled Condition, Unsafe and Unsound Practice, Audit Risk, Internal Control Over Financial Reporting & Code of Ethics, Change in Capital While Not Qualified, Well Managed and Well Capitalized Disclosures, and Company Status Disclosures. Any failure of these compliance tests adversely effects investment risk. A material failure may trigger the loss of noncore funding and increase the danger of default and systemic risk or failure of a DIHC.
- Disclosure Analysis on qualification as holding company and on possible material omissions on events that qualify for formal enforcement actions associated with unsatisfactory CAMELS Ratings of 3, 4 and 5.
- Financial impact of performance and compliance on several financial metrics in each category of assets, earnings, capital, debt, liquidity and equity. This analysis quantifies the magnitude and materiality of compliance levels, including internal and external fraud. Examples include: Earning Restatement amounts, minimum Capital Surplus/Shortfall, Ethics Metrics Credit Rating, Short Term and Long Term Liquidity Surplus/Shortfall, and adjusted Price to Earnings Ratio.
- Consolidated analytics on interconnected DIHCs for evaluating threats to the stability of the U.S. (12 U.S.C. § 5322(a)(1)(A)). These include a heatmap of quarterly DIHC Ratings plus liquidity, equity and total asset values at risk for the DIHCs.
- Contagion risk for ~1,100 Registered Investment Advisers and their DIHC Equity Values.