Systems changes advance hope for ‘S’ CAMEL piece

(Nov. 25, 2020) An “S” component (for market sensitivity) in the CAMEL examination rating system remains on the radar for NCUA in 2021, especially now that the agency’s information systems are being updated through the Enterprise Solutions Management (ESM) program.

According to a semiannual report to Congress by the agency’s Office of Inspector General (OIG) made public recently (reporting on agency activities from April 1 to Sept. 30), the addition of this component – S, which will turn the CAMEL rating system into CAMELS – will require revision to the liquidity component (L) to only include liquidity content and criteria, not interest-rate risk.

“(NCUA) Management indicated that adopting the ‘S’ (Market Sensitivity) for the CAMEL rating system involves public notice and comment, NCUA Board approval, and cohering regulation, examination procedures, and system changes,” the report states. “As part of the Enterprise Solutions Modernization program, NCUA is updating the examination platform to incorporate the ability to assign and capture the ‘S’ component as an optional part of the CAMEL rating. Management indicated they expect to have this system change in place in 2021.”

The report also states that agency management noted that the system change will provide the agency the flexibility to adopt the “S” rating if the Board so chooses, and to capture the “S” rating for federally insured state-chartered credit unions in the states where the state regulators adopted the “S” rating.”

NASCUS, which supports including the component in the agency’s rating system, has determined that at least 24 states have already adopted it in their rating system. NASCUS’ Ito said the state system also commends NCUA Chairman Hood for his consistent interest in state agency supervisory practices in adopting the “S” rating for credit unions. “The ‘S’ rating is more relevant than ever since credit unions will face growing interest rate risk as the Federal Reserve eventually allows rates to rise in concert with economic recovery that takes place in the coming years,” she said.

NCUA Semiannual Report to Congress (April 1–September 30, 2020)