Magazine article American Banker

Coming Next Month, Camel Proposal with Market-Risk Element

Magazine article American Banker

Coming Next Month, Camel Proposal with Market-Risk Element

Article excerpt

Bank and thrift regulators will soon propose a modified Camel rating system that takes into account the risks of shifting market conditions.

The Federal Financial Institutions Examination Council - the umbrella organization for the five banking, thrift, and credit union agencies - is expected to issue a proposal in mid-June to modify the 18-year-old interagency rating system. Field testing is to start at the same time.

Kevin Bertsch, a supervisory field analyst at the Federal Reserve, said Wednesday that the proposed system would examine how well institutions protect themselves from shifts in interest rates, changes in foreign currency values, and fluctuations in portfolio values.

Banks' management of these risks, Mr. Bertsch said, would become the sixth component of Camel, joining the five from which the rating system takes it name - capital, asset quality, management, earnings, and liquidity.

Though regulators were known to be weighing a risk-management component for Camel, it was not clear until now that the focus would be on market risks, and that a proposal was imminent.

"We thought the Camel system was in pretty good order, so we kept the overall framework," Mr. Bertsch said in an interview. "But one thing that hadn't been explicitly addressed in Camel is an institution's sensitivity to market risks."

He said the staffs from the regulatory agencies will complete work on the proposal by the end of next week.

Diane Casey, national director of regulatory issues for Grant Thornton, said that clearly identifying risk management as a part of Camel will give bankers a more distinct picture of what examiners expect from them. …

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