Not long ago, my colleague, Alan Gula, wrote that the U.S. banking system was the envy of the world.
Is this right? Well, it all depends on how you measure banks. After all, there are many ways to peel an onion.
As anyone in finance or economics knows, ranking banks is always controversial, as there are many tools to use – and it can be forever argued which of those tools holds more weight. Alan’s article measured banks based on their tangible common equity (TCE) ratios.
Another tool isÂ
Global Finance’s World’s Safest Banks 2015 top 50 study.
In order to be named one of Global Finance’s 50 safest banks in 2015, financial institutions must hold two credit ratings of at least AA- and one no lower than A+, or an equivalent combination from among the three major international credit rating agencies (Moody’s, Fitch, and Standard & Poor’s).
Furthermore, each qualifying institution must be among the 500 largest banks in the world by assets.
Eligible banks are then scored based on their rating, with 10 points awarded for an AAA rating down to one point for a BBB- rating. If a bank is rated by only two of the agencies, an implied score for the third rating is created by taking an average of the other two scores and then deducting one point.
Finally, banks that are wholly owned by other banks aren’t eligible. If multiple banks score the same number, they’re further ranked by asset size as of the end of 2014. This approach underscores the strong positive correlation between a bank’s high credit ratings and its size.
Here are the highlights from the Global Finance 2015 report:
- The safest bank in the world is in Germany. With assets of $594 billion, KfW reigns supreme, taking the No. 1 position with an AAA rating from all three agencies.
- Three other banks were also awarded AAA ratings across the board: Switzerland’s Zurcher Kantonalbank (#2), Germany’s Landwirtschaftlich Rentenbank (#3) and Germany’s Landeskreditbank Baden-Wurttemberg – Forderbank (#4).
- The three S. banks that made the cut were AgriBank (#30), CoBank (#45), and AgFirst (#50).
- European banks dominate, accounting for 22 of the top 50. In fact, government-owned banks or those with ties to state or regional authorities occupy the first nine places on the list.
- Other countries with multiple listings include Canada (six), Australia (four), and the Gulf States (three), but none from other Middle Eastern nations or sub-Saharan Africa made the list. One Chilean bank, BancoEstado (48), represented the only Latin American bank.
