NCUA CAMELS rating system going live on April 1, 2022
In October of 2021, the NCUA approved a final rule adding a new component to the CAMEL Rating System: ‘S’ for Sensitivity to Market Risk. In March of 2022, NCUA issued Letter to Credit Unions 22-CU-05, which addressed the final rule, and discussed the changes credit unions can expect under the new regime. The CAMELS Rating System goes live on April 1, 2022.
Prior to the April 1 effective date, NCUA staff will receive training on how to evaluate the new ‘S’ component and the updated ‘L’ component. In addition, the training will be made available to state regulators’ offices, for those that elect to use the CAMELS rating system. There is also an industry training webinar planned for credit unions, which seeks to provide a greater understanding of the updates to credit union stakeholders.
NCUA differentiates the new ‘S’ component from the ‘L’ (Liquidity Risk) component in its letter. Per NCUA, “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.” NCUA does not expect that the addition of the ‘S’ component will considerably affect or alter the examination process, and it will not be an additional “burden” to credit unions. The letter includes two enclosures: Appendix A – NCUA’s CAMELS Rating System, and Appendix B – Common Questions and Answers about the CAMELS Rating System.
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