Skip to main content
United States flag An official website of the United States government

Camel Rating System

00-CU-08 / November 2000
Camel Rating System
Board of Directors of all Federally Insured Credit Unions
Examination Program
Board of Directors of all Federally Insured Credit Unions
Camel Rating System

Periodically the National Credit Union Administration (“NCUA”) reviews the CAMEL Rating System to respond to continuing economic and regulatory changes in the credit union industry. In 1998, Congress amended the Federal Credit Union Act to establish minimum capital standards for federally insured credit unions. The effective date of these amendments was August 7, 2000.

CAMEL Background.

The CAMEL Rating System was adopted by NCUA in October 1987. Its purpose is to provide an accurate and consistent assessment of a credit union’s financial condition and operations in the areas of Capital Adequacy, Asset Quality, Management, Earnings, and Asset/Liability Management. It is not intended to be used as a “report card”, but as an internal tool to measure risk and allocate resources for supervision purposes. The last version of the CAMEL Rating System was published in Letter to Credit Unions No. 161, dated December 1994 with corresponding modifications in Letter to Credit Unions No. 167, dated May 1995.

Prompt Corrective Action.

On August 7, 1998, Congress enacted the Credit Union Membership Access Act (“CUMAA”) that required the NCUA Board to adopt a system of “prompt corrective action” (“PCA”) to restore the net worth of federally-insured credit unions which become inadequately capitalized. Part 702 of the NCUA Rules and Regulations (12 CFR 702) sets forth the statutory net worth categories, alternative system for “new” credit unions, and risk-based net worth requirements for federally-insured credit unions. The statute sets forth the five net worth categories based on a credit union’s net worth ratio. The categories are: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

Credit unions will report their net worth1 ratio through the Call Report on the “PCA Worksheet.” This will first apply to the year-end Call Report due to be filed by January 22, 2001. The risk-based net worth requirement for credit unions meeting the definition of “complex” will first apply on the basis of the data in the first quarter Call Report due to be filed by quarterly filers by April 23, 2001.

Significant Changes.

Elimination of the “Capital to Assets” and “Net Capital to Assets” ratios is the most significant change to the CAMEL rating system. The ratio of “Net Worth to Total Assets” replaces the two aforementioned ratios. Simplification and uniformity of measurement were the motivations for using net worth as the primary measure of a credit union’s financial strength. This change should eliminate inconsistencies and misunderstandings when referring to credit union’s capital, whether it was “net” or “gross” capital.

Other supporting ratios using “capital” in the calculations were changed to use “net worth” instead.

Examination Guidelines. Part 702 permits a credit union to elect one of four measures of total assets for purposes of calculating its net worth ratio on a quarterly basis. Examiners are instructed to use the month-end balance of net worth to the month-end balance of total assets for examination purposes. If the examination date falls on a quarter-end, then the examiner should use the same total asset calculation as the credit union. If a material difference exists between the credit union’s chosen method and the examination method, the examiner will discuss in the examination report the reasons for the difference and assign an appropriate capital component rating.

The CAMEL rating is not automatically determined by key ratios alone. Examiners are instructed to look behind the numbers to determine the significance of supporting ratios and trends. When evaluating the components of CAMEL, examiners look at both the quantitative measurements as well as the qualitative considerations outlined in Enclosure (1) before a final rating is determined. Examiners have the discretion to increase or decrease any rating as they determine necessary using their professional judgment.

This Letter will be effective December 31, 2000, and it will supercede Letter 161 and Letter 167 on that date.



Norman E. D’Amours


National Credit Union Administration Board


1Part 702 (12 C.F.R. §702) defines net worth as the retained earnings balance of the credit union at quarter end as determined under generally accepted accounting principles. Retained earnings consists of undivided earnings, regular reserves, and any other appropriations designated by management or regulatory authorities. This means that only undivided earnings and appropriations of undivided earnings are included in net worth. For low income-designated credit unions, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF. For any credit union, net worth does not include the allowance for loan and lease losses account.

Last modified on