As Agencies Revisit CAMELS, ABA Urges More Transparency

The American Banekrs Association today welcomed the Federal Reserve and FDIC’s effort to revisit the 41-year-old CAMELS uniform rating system and urged the agencies to make CAMELS ratings reflective of today’s regulatory requirements, to communicate ratings expectations in advance and to make the “M” or management component more transparent.

Specifically, ABA noted that banks today operate under a more stringent quantitative framework for capital and liquidity and that accounting standards have changed. “We encourage the agencies to accept compliance with these standards as evidence of operating within the highest ratings tier,” ABA said.

The association also called on the agencies to communicate in advance when their expectations under CAMELS change, noting that “it is currently unclear how, or if, the underlying expectations change as banks cross a certain asset threshold, engage in new business, or prioritize different lines of business.” And ABA asked for greater transparency in the management component, which is “viewed by banks of all sizes as an arbitrary, highly subjective, catch-all category.”