Assigning a CAMELS Rating to the "L" Component

CAMELS is an internal rating system used for evaluating the soundness of credit unions on a uniform basis, the degree of risk to the Share Insurance Fund, and for identifying those institutions requiring special supervisory attention or concern. NCUA periodically updates the CAMELS component ratings criteria in response to changes in the financial services industry and supervisory policies and procedures.

On October 21, 2021, the NCUA Board unanimously approved a final rule that added the “S” (Sensitivity to market risk) component to the existing CAMEL rating system, thus updating the rating system from CAMEL to CAMELS, and redefining the “L” (Liquidity risk) component. Adding the “S” component is intended to enhance transparency and allow the NCUA and federally insured consumer and corporate credit unions to better distinguish between liquidity risk (“L”) and sensitivity to market risk (“S”). Previously, sensitivity to market risk and liquidity risks were combined within the “L” component. The addition of “S” also aligns the supervision of credit unions with financial institutions supervised by the other banking agencies.

In March 2022, the Board published Letter to Credit Unions 22-CU-05, CAMELS Rating System, which specified the updated standards to be used to determine the 1-5 ratings for the various CAMELS components for examinations that start on or after April 1, 2022. This letter replaced Letter to Credit Unions 07-CU-12, CAMEL Rating System.

In assigning a CAMELS rating to the “L” component, examiners refer to the “L” ratings criteria outlined in Appendix A of 22-CU-05, CAMELS Rating System or the CAMELS Ratings chapter of the online Examiner’s Guide and may use the results of this chapter’s liquidity examination procedures to support the assignment of the “L” rating based on that criteria. Examiners also consult with the EIC and other exam staff who are responsible for evaluating the interrelated risks embedded within the other CAMELS components such as Capital, Asset quality, Management, Earnings and Sensitivity to Market Risk.

Last updated on April 29, 2022