NCUA: CAMELS Rule Effective April 1

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In a recent letter to credit unions (22-CU-05), the National Credit Union Administration (NCUA) noted its board has approved a final rule that added the Sensitivity to Market Risk, or “S,” component to the existing CAMEL rating system and redefined the Liquidity Risk, or “L,” component. The effective date of the CAMELS final rule is April 1, 2022. Federally insured corporate and natural person credit unions will receive CAMELS component and composite ratings from the NCUA based on the new CAMELS rating system, beginning with examinations and supervision contacts started on or after April 1, 2022.

Appendix A is the NCUA’s updated CAMELS rating system. The new Sensitivity to Market Risk component rating reflects the exposure of a credit union’s current and prospective earnings and economic capital arising from changes in market prices and interest rates. The Liquidity Risk component rating reflects a credit union’s ability to monitor and manage liquidity risk and the adequacy of liquidity levels.

The transition to CAMELS will not significantly affect the examination process nor add a burden to credit unions. The criteria for the Capital adequacy, Asset quality, Management, and Earnings components, and the composite rating, have not changed. Also, adding “S” and modifying “L” reflect factors that examiners routinely consider in evaluating a credit union’s financial condition and risk profile.

The NCUA has prepared a framework that supports the uniform application of CAMELS. It includes annual supervisory priorities and examination scope updates, routine updates to the Examiner’s Guide and National Supervision Policy Manual, a standardized examination platform and training program, regional and national quality assurance and control programs, and periodic training that addresses the inter-relationships between and among risk categories and the CAMELS rating implications.

Click here for common questions and answers about the CAMELS Rating System.

Click here to view the complete letter to credit unions (22-CU-05).

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