CAMELS Rating System

Dear Boards of Directors and Chief Executive Officers:

The NCUA Board 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, 2022.¹

Enclosed (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.

NCUA staff will receive training on evaluating the “S” and “L” CAMELS component ratings and applying the CAMELS rating system. The NCUA will make the same training available to staff of state regulators that elect to use the CAMELS rating system. Also, the NCUA will conduct an industry training webinar to allow credit union stakeholders to understand the new “S” component and the updated “L” component of the CAMELS rating system.

The NCUA’s policy is to maintain open and effective communication with all credit unions it supervises. Credit unions, examiners, and regional and central office staff are encouraged to resolve disagreements informally and expeditiously. The NCUA Board expects most disputes will be handled accordingly. If necessary, credit unions may formally appeal CAMELS composite ratings of 3, 4, or 5 (and in some circumstances a component rating) as outlined in Part 746, subpart A of the NCUA’s regulations.

As with any change in a supervisory approach, we understand credit unions and other stakeholders will have questions. I encourage you to review Appendix B for more information about this change and to visit our online resources on Sensitivity to Market Risk and Liquidity Risk supervision. Please contact your regional office if you have any questions about this subject.