ALEXANDRIA, Va.–Changes that added components to NCUA’s examination rating system to account for a credit union’s sensitivity to market risk—the new S in CAMELS—and that redefine the system’s definition of liquidity risk have been outlined in a new Letter to Credit Unions from the agency.
The revised CAMELS system was approved by the NCUA board in October 2021, and the new letter comes with attachments that explain the revised system and offer a question-and-answer document.
The agency reminded federally insured corporate and natural-person credit unions that they 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 April 1, 2022.
Additional Clarifications
According to the letter, 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 letter clarifies that the liquidity risk (L) component rating reflects a credit union’s ability to monitor and manage liquidity risk and the adequacy of liquidity levels.
“The transition to CAMELS will not significantly affect the examination process nor add a burden to credit unions,” wrote NCUA 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.”
NCUA will host a webinar today on the new CAMELS system.
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