Banking organizations will have more time – two months more – to provide input to a request for information (RFI) on the consistency of ratings provided through the Uniform Financial Institutions Rating System, better known as CAMELS, and regulators’ use of the ratings, according to notices published recently.
The RFI was issued by the Federal Deposit Insurance Corp. (FDIC) and Federal Reserve Board in October, with comments originally due Dec. 30. After receiving requests for more time, the agencies have moved the comment deadline to Feb. 28. A notice of the extension will be published in the Federal Register; the FDIC issued a Financial Institution Letter (FIL) on the extension Monday.
CAMELS is an acronym of the rating system’s six evaluation components: Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk. This system also provides for a composite rating.
Specific questions for commenters are as follows:
CAMELS Rating System
- To what extent does each agency assign composite and component ratings in a manner that is consistent with the CAMELS rating system?
- 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? Please explain.
- Are the agencies generally consistent in their approach to assigning CAMELS ratings to institutions when compared to each other and across other supervisory agencies? What practices, if any, should the agencies consider implementing to enhance the consistent assignment of CAMELS ratings?
- 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?
- To what extent does the scope of supervisory work performed during an examination cycle align with the components of the CAMELS rating system? Which areas, if any, should receive more or less emphasis in order to assign a CAMELS rating appropriately?
- What steps, if any, should the agencies take to promote the consistent application of the CAMELS framework in the supervisory process?
Implications of CAMELS Ratings
- To what extent does an institution’s condition, as reflected in its CAMELS ratings, affect the agencies’ actions on applications, particularly for new or expanded business activities? To what extent, if any, should the agencies modify or clarify their approach?
- To what extent do the CAMELS ratings impact the issuance of enforcement actions? To what extent does the issuance of enforcement actions impact CAMELS ratings? To what extent, if any, should the agencies modify or clarify their approach?
- What steps, if any, should the agencies take to promote the consistent use of CAMELS ratings in applications and enforcement matters?
The RFI includes a word of caution regarding the confidentiality requirements attached to CAMELS ratings and other examination findings and conclusions provided to financial institutions. “The agencies, however, welcome general comments that do not breach these confidentiality requirements,” they stated.