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The NCUA during its October meeting issued a final rule to add an “S” component to the CAMEL rating system, which rates a credit union’s sensitivity to the market. The final rule also redefines the “L,” or liquidity risk, component in the CAMEL system. NAFCU sent members a Final Regulation Summary to break down how the final rule will impact credit unions.

Through the summary, NAFCU notes the final rule separates the liquidity risk (“L”) and market sensitivity (“S”) components of the CAMELS rating system, which will help credit unions better understand the examiner’s risk assessment. Additionally, adoption of this system should not change the examination process, which is based on the six components followed by a risk rating based on the totality of the factors. 

The final rule will go into effect April 1, 2022; the NCUA Board will implement the addition of the “S” component and redefinition of the  “L” rating for examinations and contacts started on or after that date.

Of note, the NCUA has indicated it will provide training programs during the first quarter of 2022 and has indicated that this final rule is unlikely to change the CAMELS rating of a credit union. For credit unions where market risk is not a significant issue, less weight will be put on interest rate risk than other rating components, whereas for those with higher market risk issues, more weight will be put on the interest rate components. 

During the October board meeting, NCUA Chairman Harper expressed a desire to introduce a similar rule that would add a consumer compliance performance analysis to the management rating component of CAMELS for complex credit unions. 

NAFCU remains engaged with the NCUA to ensure examination consistency for credit unions. Stay tuned to NAFCU Today for the latest on the NCUA and this final rule. Subscribe to receive Final Regulation Summaries.