GA to apply ‘S’ in CAMEL beginning next year

June 27, 2017 -- “Sensitivity to Market Risk” -- or the “S” component -- will be added to Georgia state-chartered credit union CAMEL ratings beginning Jan. 1, the state’s Banking and Finance Department told local credit unions Monday.

In a letter, Deputy Commissioner for Supervision Melissa Sneed stated that the component will be added as a separate and distinct component rating, rather than as a factor in the “liquidity” or “L” component. She noted that by including the “S” component in CAMEL ratings, the department is utilizing the Uniform Financial Institution Ratings System modified by the FFIEC in 1997.

“Despite the adoption of the ‘S’ rating by the FFIEC in 1997, the NCUA has not implemented the separate rating of this component,” Sneed wrote. “While all regulators specifically review interest rate risk exposure, those discussions and related reporting to credit union officials have been consolidated as part of the "L" or ‘Liquidity" rating.’

“The ‘S’ component of the CAMELS rating system specifically addresses the degree to which interest rate changes can impact a credit union's earnings or net worth. This component also focuses on a credit union's ability to measure, monitor, and manage interest rate risk exposure,” Sneed added.

Sneed emphasized that the separation of the "S" component from liquidity does not imply a requirement for credit unions to develop enhanced management systems where market risk is “already appropriately identified, measured, monitored, and controlled.”

“Rather, assigning a separate ‘L’ and ‘S’ rating .is appropriate and provides for greater granularity and transparency,’ she stated.

Nineteen states have now either adopted the "S" component are indicated they will be adopting soon.