NCUA issues letter on revised exam rating system – CAMELS – that kicks in April 1

A Letter to Credit Unions explaining changes that added components to the agency’s examination rating system to account for a credit union’s sensitivity to market risk and redefine the system’s definition of liquidity risk was issued Tuesday by the federal credit union regulatory agency.

The revised exam rating system, or CAMELS – which stands for capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk, was adopted by the National Credit Union Administration (NCUA) Board in October 2021. The Letter to Credit Unions issued Tuesday includes as attachments an explanation of the revised system and a question-and-answer document answering common questions about it.

The NCUA noted that under the final rule, federally insured corporate and natural person credit unions will receive CAMELS component and composite ratings from the NCUA based on the new rating system beginning with examinations and supervision contacts started on or after this April 1.

The agency said the new sensitivity to market risk (S) component rating reflects the exposure of a credit union’s current and prospective earnings and economic capital arising from changes in market prices and interest rates. The liquidity risk (L) component rating reflects a credit union’s ability to monitor and manage liquidity risk and the adequacy of liquidity levels, it said.

“The transition to CAMELS will not significantly affect the examination process nor add a burden to credit unions,” stated Tuesday’s letter, signed by agency board Chairman Todd Harper. “The criteria for the Capital adequacy, Asset quality, Management, and Earnings components, and the composite rating, have not changed. Also, adding ‘S’ and modifying ‘L’ reflect factors that examiners routinely consider in evaluating a credit union’s financial condition and risk profile.”

The NCUA is hosting a webinar March 10 on the new CAMELS system.

NCUA Letter to Credit Unions (22-CU-05)

Appendix A NCUA’s CAMELS Rating System (CAMELS)

Appendix B Common Questions and Answers about the CAMELS Rating System

Registration to March 10 CAMELS webinar