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Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Proposed Rules The nature and complexity of interest rate risk exposure.
Examiners will rate a credit unions S CAMELS rating component on a
to market risk considering a credit unions size, complexity, and risk profile; and S rating
Description
1

Market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital position will be adversely affected;
Risk management practices are strong for the size, sophistication, and market risk accepted by the institution; and The level of earnings and capital provide substantial support for the degree of market risk taken by the institution.
Market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected;
Risk management practices are satisfactory for the size, sophistication, and market risk accepted by the institution; and The level of earnings and capital provide adequate support for the degree of market risk taken by the institution.
Control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected;
Risk management practices need to be improved given the size, sophistication, and level of market risk accepted by the institution; and The level of earnings and capital may not adequately support the degree of market risk taken by the institution.
Control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected;
Risk management practices are deficient for the size, sophistication, and level of market risk accepted by the institution;
and The level of earnings and capital provide inadequate support for the degree of market risk taken by the institution.
Control of market risk sensitivity is unacceptable or that the level of market risk taken by the institution is an imminent threat to its viability; and Risk management practices are wholly inadequate for the size, sophistication, and level of market risk accepted by the institution.

2

3

4

5

The Board also requests comments on the proposal to describing the L
component and the criteria used in determining the 15 assigned ratings.
B. L Component for Liquidity Risk In evaluating the adequacy of a credit unions liquidity profile, examiners consider the current and prospective sources of liquidity compared to funding needs and the adequacy of liquidity risk management relative to a credit unions size, complexity, and risk profile. A credit unions liquidity risk management practices should ensure the credit union maintains sufficient
liquidity to timely meet its financial obligations and member share and loan demands. These practices should reflect the credit unions ability to manage unplanned changes in funding sources, changes in market conditions affecting its ability to quickly liquidate assets with minimal loss, ensure liquidity is maintained at a reasonable cost and limit reliance on funding sources that may not be available in times of financial stress or adverse changes in market conditions.
A credit unions liquidity risk management practices should also be
commensurate with the complexity of the balance sheet and its capital adequacy. This includes evaluating the reporting mechanisms in place to monitor and control risk, managements response when risk exposure approaches or exceeds the credit unions risk limits, and the prescribed corrective action taken when necessary.
Examiners will rate a credit unions L CAMELS rating component on a scale of 1 to 5 using the same rating descriptions for L as the other banking agencies.

L rating
Description
1

Strong liquidity levels and well-developed funds management practices; and The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs.
Satisfactory liquidity levels and funds management practices;
The institution has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs; and Modest weaknesses may be evident in funds management practices.
Liquidity levels or funds management practices in need of improvement; and Institutions rated 3 may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices.
Deficient liquidity levels or inadequate funds management practices; and Institutions rated 4 may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity needs.
Liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened; and Institutions rated 5 require immediate external financial assistance to meet maturing obligations or other liquidity needs.

2

3
4

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scale of 1 to 5 using the same rating descriptions for S as the other banking agencies.

5

The CAMEL rating system is not set forth in a separate section or part in the NCUAs regulations. Rather, references to CAMEL appear in several parts in the
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Code of Federal Regulations CFR.
NCUA regulations regularly refer to CAMEL composite 1 or 2 rated credit unions, which indicate the ability
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to safely support additional regulatory flexibility, or CAMEL composite 4 or 5 rated credit unions, which warrant increased regulatory scrutiny.

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