Regulators Issue Request for Information on Bank Soundness Rating System
The FDIC and the Federal Reserve issued a request for information about their rating system—known as CAMELS—used to measure a bank’s soundness and stability. Comments will be due by December 30, 2019.
CAMELS is an acronym for six factors the regulators use to measure a bank’s soundness and stability: Capital; Asset Quality; Management; Earnings; Liquidity; and Sensitivity to Market Risk. During examinations, banks receive a rating from 1 (highest rating) to 5 (lowest rating) for each factor, as well as an overall rating based on a composite of the six factors. The ratings, as with most aspects of bank examinations, are not publicly disclosed. In addition to providing the bank with information about areas where the regulator believes the bank needs improvement, the ratings are also used to determine whether a bank should be subject to extra examinations. Further, the regulators take the ratings into account when evaluating whether to grant certain approvals for the banks, such as merging with or acquiring another institution, opening new branches, or engaging in new lines of business.
The request seeks comments and information about topics such as: 1) how well the regulators adhere to the appropriate definitions of the six CAMELS factors; 2) the regulators’ consistency in the application of the ratings; 3) how well the regulators communicate about the ratings during and after examinations; 4) whether the ratings are sufficiently flexible to reflect differences between different types of banks; 5) the extent to which the ratings should affect the regulators’ actions towards the banks; and 6) the extent to which the ratings should impact enforcement actions. The request notes that it is not seeking comments about modifying the CAMELS rating definitions themselves. The request seeks comments and information from interested members of the public, which may include insured depository institutions, other financial institutions or companies, individual depositors and consumers, consumer groups, trade associations, and other members of the financial services industry.
