WASHINGTON—Federal Reserve Vice Chair for Supervision Michelle Bowman said regulators are preparing changes to the CAMELS ratings system used to grade banks’ condition, saying the effort is part of a broader push to make supervision focus more directly on “material financial risks,” Law360 reported.
The CAMELS system grades institutions on capital, asset quality, management, earnings, liquidity and sensitivity to market risk, and the Fed has said supervisory ratings should accurately reflect an institution’s financial condition and material risks.
Bowman has been laying the groundwork for such changes for months. In January, she said the Fed was working to ensure CAMELS ratings reflect a bank’s risk profile and financial condition, including that the “M” for management be assessed on measurable factors. The Fed’s updated supervisory principles also say management and risk-management components should not be given more weight than other components in determining a composite rating.
The move follows other steps under Bowman to recalibrate supervision, including new Fed principles directing examiners to focus on material financial risks rather than procedural or documentation issues, and earlier changes to the large financial institution ratings framework. Bowman has said the goal is not weaker supervision, but ratings and examination findings that are “current, credible” and tied to the actual financial condition of institutions.