The FDIC tracked 18 bank failures in 2014 (Failed Banks- as of 1/30/2015). This number was relatively low in historical terms, but we are always on guard for the next credit cycle.
This chart shows how our fundamental probability of default model tracked these 18 failed banks, which were all unrated, in the 22 quarters prior to their default. We translate this numerical probability of default to a PD implied credit score on a lowercase ratings-based scale for ease of analysis. You can see the steady decline in credit quality as early as five years before the default, and a marked decline in the two to three years before default.
Source: PD Implied Credit Scores – S&P Capital IQ as of 1/30/2015
To learn more about these trends, early indicators of distress in financial institutions and to hear the latest financial institutions outlook from S&P Ratings, register to attend our webinar – “Credit Conversations: Understanding the Risks in the Banking Sector” on February 25th at 11AM EST.