Circular
Proposed Revision of Camel Rating System
August 8, 1996
Circular No. 10864

Comments Due September 16

To the Chief Executive Officers of All State Member Banks and Bank Holding Companies in the Second Federal Reserve District:

The following is from a press release issued by the Federal Financial Institutions Examination Council (FFIEC):

The Federal Financial Institutions Examination Council (FFIEC) has announced that it will request comment on proposed revisions to the existing Uniform Financial Institutions Rating System, commonly referred to as the CAMEL rating system. Two major revisions being proposed are: language emphasizing the importance of the quality of risk management processes in composite ratings and each of the rating components, particularly in the management component; and, the addition of a sixth rating component addressing sensitivity to market risks, including interest rate, price, and foreign exchange risks. Other proposed changes include: the reformatting and clarifying of the existing component rating descriptions; additional language in composite rating definitions to parallel the proposed changes in component descriptions; and, the identification of the types of risks that are to be considered in assigning component ratings. The proposed revisions update the rating system to reflect changes that have occurred in the financial services industry and in supervisory policies and procedures since the rating system was first adopted in 1979.

The Uniform Financial Institutions Rating System is an internal supervisory tool currently used by the Federal supervisory agencies represented on the FFIEC -- the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the National Credit Union Association (NCUA). In addition, state banking departments, as well as the Farm Credit Administration, use the rating system. The supervisory agencies use the rating system to evaluate the soundness of financial institutions on a uniform basis and to identify those institutions requiring special supervisory attention or concern.

Printed on the following pages is the text of the FFIEC's proposal, as published in the Federal Register of July 18 is available. Comments thereon should be submitted by September 16, 1996 and should be sent to the FFIEC, as specified in the notice. After reviewing the comments and making appropriate changes, the FFIEC intends to recommend adoption of the final revised rating system by its member agencies (including the Federal Reserve).

Questions on this matter may be directed, at this Bank, to Fred Herriman, Vice President.