ALEXANDRIA, Va. — The Federal Financial Institutions Examination Council, of which NCUA is a member, is seeking public comment on proposed revisions to the CAMELS rating system, marking what officials described as the first comprehensive overhaul of the framework in 30 years.
The proposal can be found here.
The FFIEC said the proposed revisions are intended to sharpen the focus of supervisory ratings on “material financial risk” and improve transparency and predictability in the examination process.
In announcing the proposal, the FFIEC said the revised framework would retain the basic structure of the current CAMELS system while modifying certain composite and component rating definitions and evaluation factors to strengthen the connection between ratings and a financial institution’s safety and soundness.
‘Decisive Shift’
Michelle W. Bowman, chair of the FFIEC and vice chair for supervision at the Federal Reserve Board, said the revisions are intended to modernize the framework and place greater emphasis on transparency and quantitative measures.
“The revised CAMELS framework marks a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight,” Bowman said in a statement released by the FFIEC.
The FFIEC said the public will have 90 days after publication in the Federal Register to submit comments on the proposal through the federal eRulemaking portal.
NCUA Chair Supports Proposal
“As a member of the FFIEC, I approved the proposal and encourage credit unions to provide feedback on the proposal. I’d like to thank FFIEC Chair Michelle Bowman for her leadership, and my fellow FFIEC members for the thoughtful consideration of such an important topic,” NCUA Chairman Kyle Hauptman said in a statement. “Importantly, 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.
“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,” Hauptman continued. “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.”
About the FFIEC
The FFIEC consists of six voting members, including representatives from the Federal Reserve, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the NCUA and the State Liaison Committee.
America’s Credit Unions Responds
“America’s Credit Unions 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,” Greg mesack, SVP-advocacy with America’s Credit Unions, said in a statement. “We look forward to working with our credit union members to provide feedback on the FFIEC’s proposed revisions.”
