WASHINGTON—The Federal Financial Institutions Examination Council is seeking public comment on a proposed overhaul of the CAMELS supervisory ratings framework, marking what regulators said would be the first comprehensive revision of the bank and credit union examination system in approximately 30 years.
The proposal would revise the Uniform Financial Institutions Rating System—better known as CAMELS—to place greater emphasis on material financial risk and improve the transparency and predictability of supervisory ratings. Regulators said the framework would continue to evaluate institutions on capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk, while modifying certain composite and component rating definitions and evaluation factors.
In announcing the proposal, FFIEC Chair and Federal Reserve Vice Chair for Supervision Michelle Bowman said the revised framework is intended to create “a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight.” Regulators said the changes are designed to strengthen the connection between supervisory ratings and an institution’s overall safety and soundness by focusing more directly on material financial risks.
The FFIEC said regulators use CAMELS ratings to identify institutions requiring heightened supervisory attention or other action, making the framework one of the most important tools in the examination process for banks and credit unions. The agencies are accepting public comment for 90 days following publication in the Federal Register.
NCUA Chairman Kyle Hauptman said the FFIEC proposal would maintain the foundational CAMELS structure while updating component and composite rating definitions and evaluation factors to reflect today’s financial landscape.
"Two major objectives of the proposal are to improve transparency by clarifying how ratings are assessed and to provide institutions with a more predictable and risk-focused evaluation process. The revisions emphasize the factors that materially affect an institution’s financial condition and risk profile over concerns with documentation, policies, or procedural matters when those issues do not pose a meaningful risk to safety and soundness," Hauptman said. "This revised framework aligns with many of NCUA’s other efforts to integrate risk-based supervision principles into the examination program, including the elimination of reputation risk and NCUA’s Deregulation Project.
"By reducing ambiguity in the CAMELS rating framework, improving transparency, and clearly focusing examinations on material financial risks, these proposed revisions will allow credit unions to dedicate more of their energy to what matters most, serving their members and supporting the communities they operate in," concluded Hauptman.
ACU, DCUC Comment
“DCUC appreciates the FFIEC’s effort to modernize the CAMELS supervisory framework and increase transparency in the examination process for financial institutions," stated Defense Credit Union Council Chief Advocacy Officer Jason Stverak. "This marks one of the most significant proposed updates to the rating system in decades, and it is important that regulators continue working to ensure examination standards remain clear, consistent, and appropriately tailored to today’s evolving financial services environment. Defense credit unions operate in highly unique communities serving servicemembers, veterans, and their families around the world. Greater transparency and consistency in the supervisory process helps institutions better manage risk, plan strategically, and continue meeting the financial readiness needs of military communities.
"We appreciate the leadership shown by regulators in opening this proposal for industry input and dialogue," continued Stverak. "DCUC looks forward to reviewing the proposal in detail and working constructively with the FFIEC, NCUA, and other stakeholders to ensure the final framework supports safety and soundness while recognizing the distinct structure and mission of credit unions. As the regulatory environment continues to evolve, DCUC remains committed to advocating for a fair, transparent, and balanced supervisory system that allows credit unions to continue serving their members effectively.”
America's Credit Unions Senior Vice President of Advocacy Greg Mesack said ACU appreciates the financial regulators pursuing reforms to the CAMELS rating system.
"We have long advocated for the FFIEC to modernize this system to improve consistency without jeopardizing safety and soundness of financial institutions. We look forward to working with our credit union members to provide feedback on the FFIEC's proposed revisions," Mesack said.