As regulators weigh changes to the CAMELS rating system, the American Bankers Association said it supports revisions that prioritize safety and soundness but believes further changes should be made to make ratings more objective and predictable.
Earlier this year, the Federal Financial Institutions Examination Council proposed a series of changes to the Uniform Financial Institutions Rating System to emphasize material financial risks over concerns related to policies, procedures and documentation. Proposed changes include narrowing the management component of the ratings system and eliminating “special consideration” given to that component when determining a bank’s composite rating.
In a letter today to the FFIEC, ABA called the proposed changes a step in the right direction. Still, the association has several suggestions for further revisions to ensure that CAMELS ratings are truly tied to material financial risks. They include clear definitions for “material financial risk” and “significant non-compliance” with law or regulation; more clarity about the effects of specialty review findings on ratings; focusing the management component on institution-wide risk management practices; and clarifying the role of nonbinding supervisory observations.
“Because CAMELS ratings carry significant consequences, the final framework should be objective, predictable and demonstrably tied to the institution’s financial condition and risk profile,” ABA said.
