Definition:
1) research and analysis of a company or organization (i.e. bank) done in preparation for a business transaction or 2) the care that a reasonable person exercises to avoid harm to other persons or their property.
Why is it important?
If you have influence over anyone's money (i.e. a community association, a church, any business entity - or your own!), then it is your responsibility to ensure you have made a wise choice of banks.
Take the following true story, for example:
The warm, snowless winter took a toll on a ski resort in upstate New York. It needs a $1.6 million loan to stay open. Problem is, its lender, Tennessee Commerce Bank, Franklin, TN, failed in January—right at the peak of the ski season. The failed bank’s deposits were assumed by another bank, but not its assets (loans). Those were taken on by the FDIC “for later distribution”. That means it is now up to the FDIC whether or not this ski resort remains a viable concern. Or conversely, whether more than 1,000 people will lose their jobs. (American Banker 7/23/2012)
What can I do?
Had the resort monitored the bank's rating, it would have seen the signs with enough time to line up a new lender prior to the ill-fated ski season. Is this a chance you want to take?