WASHINGTON–America’s Credit Unions is calling on NCUA to work through the Federal Financial Institutions Examination Council (FFIEC) to modernize the CAMELS rating system to “improve consistency and reduce subjectivity across examinations.”
In a letter to the agency, Regulatory Advocacy Senior Counsel Luke Martone specifically outlined key reforms to the “M” component of CAMELS (management) where the trade group believes improvements can be made by either removing it as a standalone component or narrowing the rating, so it “reflects only material operational risks that pose real safety-and-soundness concerns.”
“If the ‘M’ score focused solely on clear, real risks, it would be more objective and better tied to actual safety and soundness concerns,” Martone statted in the letter. “This would make the rating more useful and lead to more consistent evaluations of credit unions.”
A ‘Catch-All’ for Examiner Preferences
“From our discussions with others in the financial services industry, as well as anecdotal reports from our member credit unions, both credit unions and banks find that the ‘M’ (Management) component is often used as a catch-all for examiner preferences or general supervisory issues that do not pose a material safety-and-soundness risk,” the letter states. “This can make exams less consistent and more subjective, sometimes leading to rating downgrades that can create significant challenges for credit unions. In practice, examiners already assess management quality within each of the other CAMELS components.
“As the NCUA Examiner’s Guide explains, capital planning, asset quality oversight, earnings management, liquidity practices, and sensitivity to market risk all include evaluations of governance, internal controls, and managerial decision-making,” the letter continues. “Because these assessments are already built into the system, a separate “M” score does not add clarity and often repeats what is already captured elsewhere.”
The full letter can be found here.
