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Federal Deposit Insurance Corporation (FDIC) Chairman Travis Hill today issued the following statement regarding the Federal Financial Institutions Examination Council’s approval of a proposal to revise the uniform financial institutions rating system, commonly known as CAMELS:
Today’s proposal represents an important step in the FDIC’s ongoing efforts to reform bank supervision to focus on factors that materially affect an institution’s financial condition and risk profile.
The FFIEC first developed the Uniform Financial Institutions Rating System, commonly referred to as CAMELS, in 1979 to establish a uniform framework to evaluate an institution’s “financial condition, compliance with laws and regulations, and overall operating soundness.”1 The CAMELS framework has not been modified since 1996, while the banking industry has undergone significant changes.
The proposal is intended to modify how the overall composite and individual component ratings are described to shift the emphasis away from a bank’s process for managing risks and towards factors and risks that materially impact a bank’s financial condition. Under the proposal, a bank’s internal controls and risk management would remain relevant in the overall evaluation, but the primary focus of the ratings system would be on fundamental financial risks most pertinent to safety and soundness. Key changes would include reducing the influence of the Management component rating on the overall composite rating;2 limiting the impact of specialty exam considerations to those that pose material financial risk; and focusing the ratings definitions and evaluation factors on the areas most impactful to an institution’s financial condition.
I thank the staffs of the FFIEC and its member entities for their work on the proposal. I encourage robust feedback and look forward to reviewing comments.
1 Federal Financial Institutions Examination Council, Uniform Rating System, (Nov. 13, 1979) p. 1.
2 Under the proposal, among other changes, the Management rating would no longer be given “special consideration” when assigning the composite rating, and the composite rating definitions would deemphasize consideration of management compared to the existing definitions.
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