NCUA, the last federal holdout on ‘CAMELS,’ adds ‘S’ for ‘market sensitivity’ to exam components

A final rule that adds a “market sensitivity” component to the federal examination system for credit unions was approved unanimously Thursday by the National Credit Union Administration (NCUA) Board, with board members voting 3-0 in approving the change.

The action adds an “S” (for “market sensitivity”) to the rating system and brings the agency in line with a policy adopted more than two decades ago by federal bank and savings institution regulators. The change was also recommended by the agency’s own inspector general in 2015.

Thursday’s final rule also redefines the “L” component (liquidity risk) of the rating system, CAMEL (for Capital Adequacy, Asset Quality, Management, Earnings, and, now, Liquidity and asset/liability management).

The rating system change from CAMEL to CAMELS is set to take effect April 1, 2022.

The NCUA said that adding the “S” component will allow the agency and federally insured credit unions to better distinguish between liquidity risk and sensitivity to market risk. It said the change will also enhance consistency between the regulation and supervision of credit unions and other financial institutions.

The CAMELS proposal was issued for comment in January by unanimous vote of the NCUA Board. In the final rule commentary, the NCUA said the updated rating system is based on (and consistent with) the Uniform Financial Institutions Rating System (UFIRS) system used by the NCUA and federal banking regulators. It noted that the agency made certain minor, non-substantive modifications to the rating descriptions to clarify and better reflect supervision of credit unions.

CAMELS final rule