After collecting, reviewing, and interpreting all appropriate data, the examiner will document his or her conclusions. In this step of TAP, the examiner identifies concerns, explains their causes, and assesses risk to arrive at a CAMELS rating. The CAMELS rating reflects an examiner’s assessment of a credit union’s capital adequacy, asset quality, management, earnings, and asset liability management. CAMELS ratings also allow examiners to measure risk and to allocate resources for supervision purposes.
Key ratios alone do not automatically determine a CAMELS rating. Examiners follow TAP to ensure that data is collected, reviewed, and interpreted in an appropriate manner.
When evaluating CAMELS components, examiners consider quantitative and qualitative data. Letter to Credit Unions 22-CU-05, CAMELS Rating System, outlines these areas more fully. Examiners have the discretion to increase or decrease the component or overall ratings they deem necessary using their professional judgment. Support increases or decreases in the exam report.
Risk Ratings
In addition to considering quantitative and qualitative data, examiners also determine the level of the overall risk in the following risk areas:
- Credit
- Liquidity
- Interest rate
- Compliance
- Strategic
- Transaction
- Reputation
Example of Assigning Risk Level
An examiner determines that a credit union’s MBL portfolio has high credit risk. However, MBLs only make up a small percentage of the credit union’s total assets. As a result, the examiner concludes that the credit union has either low or moderate credit risk. The assignment will depend on the remainder of the balance sheet and management's future plans for the MBL program.
The examiner will evaluate the level (high, moderate, or low) and anticipated future direction (increasing, unchanged, or decreasing) for each risk area.
Example of Assigning Anticipated Future Direction of Risk
An examiner determines that a credit union has plans to rapidly increase its indirect loan portfolio. Although the portfolio currently represents a small portion of the credit union’s overall portfolio, the examiner determines that the impact of the proposed growth represents increasing credit risk.
Examiners can make sound recommendations only by reaching informed and logical conclusions. Depending on a credit union's circumstances and the degree of examiner judgment required, examiners may find some conclusions difficult to reach. When this occurs, examiners seek assistance from their supervisor.
Last updated October 11, 2016
