Consistency of ratings assigned under the examination ratings system, as well as how regulators use the ratings generated from those exams in enforcement actions and bank applications, is the subject of a call for comment from two federal banking agencies Friday.
The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve said they are seeking the comments from banks and the public on the agencies’ use of the “Uniform Financial Institutions Rating System,” also known as the CAMELS rating system. (CAMELS stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity – the primary elements reviewed in a financial institution examination.)
The FDIC and the Fed said their comment call (which will run for 60 days) is “in keeping with ongoing initiatives to increase transparency and improve efficiency” at the agencies. They also asserted that their outreach on CAMELS ratings “is consistent with their commitment to provide opportunities for public feedback on issues affecting supervised institutions.”
Among other things, the agencies are seeking comment on:
- To what extent do the agencies appropriately communicate and support each rating after an on-site examination or at the end of an examination cycle, including communicating the effect of each rating or finding on the composite rating?
- Does the agencies’ use of the CAMELS rating system vary from one examination, or examination cycle, to the next?
- To what extent do the agencies apply the CAMELS rating system in a manner that is sufficiently flexible to reflect differences between financial institutions such as size, business models, risks, and internal and external operating environments, as well as overall technological developments and emerging risks?
- What steps, if any, should the agencies take to promote the consistent application of the CAMELS framework in the supervisory process (as well as use of CAMELS ratings in applications and enforcement matters)?