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Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 / Rules and Regulations
response when risk exposure approaches or exceeds the credit unions risk limits, and the prescribed corrective action taken when necessary.25
Liquidity ratings are based on, but not limited to, the following evaluation factors:
The adequacy of liquidity sources compared to present and future needs and the ability of the credit union to meet liquidity needs without adversely affecting its operations or condition;
The availability of assets readily convertible to cash without undue loss;
Access to sources of funding;
The level of diversification of funding sources, both onand offbalance sheet;

with the added evaluation factor examples, is appropriate and consistent with the NCUAs overall mission to ensure the safety and soundness of FICUs.26 The Board notes that the updated rating system is based on, and is consistent with, the UFIRS system utilized by the other prudential regulators. Nevertheless, the Board made certain minor, non-substantive modifications to the rating descriptions to clarify and better reflect supervision of credit unions. Notwithstanding this slight divergence from UFIRs, the Board has determined that the NCUAs revised rating system is consistent with the other financial supervisors.
Examiners will rate a credit unions L CAMELS component rating on a scale of 1 to 5.

L rating
Description
1

The credit union has strong liquidity levels.
The credit union has well-developed funds management policies and practices.
The credit union has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs.
The credit union has satisfactory liquidity levels.
The credit union has adequate funds management policies and practices.
The credit union has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs.
The credit union has low liquidity levels.
The credit unions funds management policies and practices are not fully commensurate with its size and complexity, or the liquidity risks it has taken.
The credit union may lack ready access to funds on reasonable terms.
The credit union has inadequate liquidity levels.
The credit unions funds management policies and practices are inadequate given its size and complexity, or the liquidity risks it has taken.
The credit union is likely not able to obtain sufficient funds on reasonable terms to meet liquidity needs.
Liquidity levels are so deficient there is an imminent threat to the credit unions viability.
The credit union requires extraordinary external financial assistance to meet maturing obligations or other liquidity needs.

2

3

4

5

C. Comments Regarding Technical Amendments in the Code of Federal Regulations
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The degree of reliance on shortterm, volatile sources of funds to fund longer term assets;
The trend and stability of deposits;
and The capability of management to properly identify, measure, monitor, and control the credit unions liquidity position, including the effectiveness of funds management strategies, liquidity policies, management information systems, and contingency funding plans.
The Board has determined that updating the NCUAs supervisory rating system from CAMEL to CAMELS by modifying the L Liquidity Risk component in the existing CAMEL
rating system to include only liquidity evaluation content and rating criteria as outlined in the proposed rule, along
The Board did not receive comments regarding the proposed technical amendments to the CFR. The CAMEL
rating system is not in a separate section or part in the NCUAs regulations, but references to CAMEL appear in several parts in the CFR. NCUA regulations regularly refer to CAMEL composite 1
or 2 rated credit unions, which indicate the ability to safely support additional regulatory flexibility; or CAMEL composite 4 or 5 rated credit unions, which warrant increased regulatory scrutiny. The Board has determined that amending the term CAMEL to CAMELS in the following sections in the CFR as proposed is necessary with the decision to adopt the 25 https www.ncua.gov/files/letters-creditunions/LCU2013-10-InteragencyPolicyStatement Funding.pdf.

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CAMELS rating system for both natural persons and corporate FICUs.
700.2 definition of Troubled condition 701.14 Change in official or senior executive officer in credit unions that are newly chartered or are in troubled condition 701.23 Purchase, sale, and pledge of eligible obligations 703.13 Permissible investment activities 703.14 Permissible investments 703.108 Eligibility 704.4 Prompt corrective action for corporate credit unions 713.6 Fidelity Bond and Insurance Coverage for FICUs D. Other Comments Several commenters supported the proposal, stating it would enhance uniformity with other regulators. One 26 12

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commenter requested that the NCUA
should adopt the UFIRS, which was approved by the FFIEC and used by the OCC, FDIC, the Federal Reserve Board, and many State Supervisory Authorities. The same commenter further suggested that the Board should keep its rating descriptions consistent with the rating descriptions for the L
and S ratings used by other banking agencies by adopting the UFIRS in its entirety, stating the agency would benefit from not having to establish and maintain a separate authoritative framework for its examination rating system. The commenter stated that using the same CAMELS terminology but with different definitions from the UFIRS would create unnecessary confusion, impair a common understanding of the condition of financial institutions, create a disconnect with FFIEC guidance, and
CFR 741.12.

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