NCUA Board to hear about “S” in CAMEL;
consider proposed, interim final rules
June 9, 2016 -- A second “board briefing” – this one on interest rate risk supervision and adding an “S” to the CAMEL rating system – is planned for next Thursday’s open meeting of the two-member NCUA Board in Alexandria, Va.
The panel held its inaugural “board briefing” – an initiative of Chairman Rick Metsger – at its May meeting.
A Nov. 13 report of the agency’s Office of Inspector General (OIG) recommended that the agency add an “S” for market-risk sensitivity to its CAMEL rating system, and revise the “L” to reflect only liquidity factors, because the current system “may not be effectively capturing interest-rate risk (IRR) when assigning a composite CAMEL rating to a credit union.”
However, in the report, the OIG also pointed out that any change to the two components cannot come before the end of 2018, “because the process involves regulation changes, reprogramming of multiple data systems, and revisions to examination policies and procedures.”
The report, (#OIG-15-11, “Review of NCUA’s Interest Rate Risk Program”) which is the result of a “self-initiated” audit by the OIG, states that NCUA currently assesses sensitivity to market risk under the "L" in its CAMEL rating. “However, combining sensitivity to market risk with liquidity may understate or obscure instances of high IRR exposure in a credit union,” the report notes. “The addition of an ‘S’ rating to its CAMEL Rating System to capture and separately assess a credit union’s sensitivity to market risk should improve NCUA’s ability to accurately measure and monitor interest rate risk,” the report concludes.
A number of states already use the “S” component – including Colorado, Connecticut, Maine, Massachusetts, Michigan, Mississippi, Montana, Nebraska, Nevada, New Hampshire, Texas, Utah, Vermont and Washington. At least another five states are considering the addition of the “S.”
In other action, the Board will also consider a proposed rule on Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule, and an interim final rule on Part 747, Statutory Inflation Adjustment of Civil Money Penalties.