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Proposed Rules
Federal Register Vol. 86, No. 44
Tuesday, March 9, 2021

This section of the FEDERAL REGISTER
contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules.

NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 700, 701, 703, 704, and 713
RIN 3133AF32

CAMELS Rating System National Credit Union Administration NCUA.
ACTION: Proposed rule with request for comments.
AGENCY:

The Board is proposing to add the S Sensitivity to Market Risk component to the existing CAMEL
rating system and redefine the L
Liquidity Risk component, thus updating the rating system from CAMEL
to CAMELS. The proposal to add the S component will enhance transparency and allow the NCUA, State Supervisory Authorities, and federally insured credit unions to better distinguish between liquidity risk L
and sensitivity to market risk S. The amendment would also enhance consistency between the regulation of credit unions and other financial institutions. The Board is proposing to implement the addition of the S
rating component and a redefined L
rating as early as the first quarter of 2022.

SUMMARY:

Comments must be received on or before May 10, 2021.
ADDRESSES: You may submit comments by any of the following methods Please send comments by one method only:
Federal eRulemaking Portal: http
www.regulations.gov. Follow the instructions for submitting comments.
NCUA Website: http
www.ncua.gov/
RegulationsOpinionsLaws/proposed_
regs/proposed_regs.html. Follow the instructions for submitting comments.
Email: Send messages to regcomments@ncua.gov. Use the subject line: Your name Comments on Notice of Proposed Rulemaking Regarding CAMELS Rating System.

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DATES:

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Fax: 703 5186319. Include Your name Comments on Notice of Proposed Rulemaking Regarding CAMELS Rating System on the cover page.
USPS/Hand Delivery/Courier:
Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314
3428.
Public Inspection: All public comments will be made available on the NCUAs website http www.ncua.gov/
Legal/Regs/Pages/PropRegs.aspx as submitted, except for those we cannot post for technical reasons. The NCUA
will not edit or remove any identifying or contact information from the public comments submitted.
FOR FURTHER INFORMATION CONTACT:
Thomas Fay, Director of Capital Markets at 703 5181179 or Robert Bruneau, Senior Capital Markets Specialist at 703
9452491, Office of Examination and Insurance, or Marvin Shaw, Staff Attorney Office of General Counsel at 703 5186554.
SUPPLEMENTARY INFORMATION:
I. Background The NCUA adopted its current rating system, known as CAMEL, in 1987.1
The current CAMEL rating is based upon an evaluation of five critical elements of a credit unions operations:
Capital adequacy, asset quality, management, earnings, and liquidity and asset-liability management. CAMEL
is designed to take into account and reflect all significant financial, operational, and management factors examiners assess in their evaluation of a credit unions performance and risk profile.
Under this system, the NCUA assigns each credit union a composite CAMEL
rating based on the agencys evaluation and rating of five components of an institutions financial condition and operations. As specified in the 2007
Letter to Credit Unions,2 these components address a credit unions:
Capital adequacy;
Asset quality;
Management;
Earnings; and 1 NCUA Letter No. 93. Letter to Credit Unions, September 25, 1987.
2 NCUA Letter to Credit Unions 07CU12 Dec.
2007.

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Liquidity and asset liability management.
Examiners assign composite and component CAMEL ratings using a scale that ranges from 1 to 5. The highest rating is a 1, indicating the strongest performance and risk management practices, and the least degree of supervisory concern. The lowest rating is a 5, indicating the weakest performance, inadequate risk management practices, and the highest degree of supervisory concern. When evaluating these components, examiners use their professional judgement and consider both qualitative and quantitative factors when analyzing a credit unions performance.
In 1997, members of the Federal Financial Institution Examination Council FFIEC,3 with the exception of the NCUA, proposed and subsequently adopted revisions to the Uniform Financial Institutions Rating System UFIRS and a Policy Statement that reaffirmed the five CAMEL rating system components and added a sixth component, Sensitivity to Market Risk S, to address price and interest rate risks IRR.4 The NCUA opted not to use the S component and retained its existing CAMEL rating system based on the relative lack of complexity in the consolidated balance sheets of credit unions at the time. However, since 1997, credit unions have increased in size and complexity by significantly increasing their mortgage-related assets from 19 percent of total assets to 42
percent at September 2020.
The NCUA has made several pertinent modifications to the CAMEL rating system since 1997. These involve changes to financial ratios,5 adding and subsequently eliminating a CAMEL
matrix,6 accommodating the adoption of Prompt Corrective Action PCA,7 and 3 At the time, the FFIEC was comprised of the Federal Deposit Insurance Corporation FDIC, the Board of Governors of the Federal Reserve Federal Reserve, and the Office of Comptroller of the Currency OCC, the NCUA, and the Office of Thrift Supervision OTS. OTS merged into OCC as a result of the Dodd Frank Wall Street Reform and Consumer Protection Act. See Section 312 of Public Law 111203.
4 62 FR 752, Jan. 6, 1997.
5 Letter to Credit Unions 00CU08 Nov. 2000.
6 NCUA Letter to Credit Unions 07CU12 Dec.
2007.
7 In 1998, Congress enacted the Credit Union Membership Access Act CUMAA. Pub. L. 105
219, 112 Stat. 913 1998. CUMAA amended the Federal Credit Union Act the Act to require the
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