(May 14, 2021) Moving expeditiously on adding a “market risk sensitivity” component to the credit union examination system – that is, adding an “S” to “CAMEL” – would better align NCUA with state credit union and federal banking regulators that have already made the move, NASCUS wrote in its second significant comment letter this week.
Under a proposal issued in January, the examination rating system would be known as “CAMELS” and redefine the “L” component (for “liquidity risk”) to measure interest rate and liquidity risk more precisely. NASCUS wrote that the change is something the state system has long urged the agency to make, and the association fully supports the proposal.
While the change would align NCUA with state agencies (24 of which have adopted their own CAMELS system), and other federal regulators, NASCUS wrote, there is no need to “reinvent the wheel and develop a credit union CAMELS Rating System that diverges from the established CAMELS system currently in use in bank supervision and in the states that have adopted CAMELS for credit union supervision.” NCUA has proposed definitions and components of the criteria to be used in assigning the “S” and “L” ratings.
The state system supports implementing the CAMELS Rating System as proposed, NASCUS said, and incorporating the definitions, components, and criteria from the Uniform Financial Institutions Rating System (UFIRS), first adopted in 1997 by members of the FFIEC (with the exception of NCUA).
“Without question, the prevailing supervisory consensus is that distinguishing between the management of funds and the sensitivity to interest rate risk is a more precise and transparent method for evaluating risk.,” NASCUS wrote. “Furthermore, it is our understanding that the implementation of the CAMELS Rating System in the states where it was adopted was achieved with very little disruption to the affected credit unions and is in fact preferred by many of those same credit unions.”
NASCUS noted that adopting the revised CAMELS system will result in some costs to the agency (such as making corresponding changes throughout the agency’s rules and regulations and within agency systems and documents, as well as requiring training for examiners). “However, the benefits of measuring a credit union’s condition more precisely as well as NCUA’s aligning with its federal and state peers in adopting CAMELS far outweigh any costs,” NASCUS concluded.