Camels Data Show Downturn's Roots in '98
Rehm, Barbara A., American Banker
The industry's health -- as judged by Camels ratings assigned by federal bank and thrift examiners -- peaked in 1998 and has gradually deteriorated ever since.
Federal Deposit Insurance Corp. data compiled for American Banker showed that examiners reduced the Camels scores for 801 banks and thrifts last year but raised them for 551 -- a net negative change of 250 institutions. That's 3.73% of the 6,705 banks and thrifts examined in 2000. The Camels rating change was a negative 3.38% in 1999 and a negative 0.04% in 1998. For comparison, a net 329 banks and thrifts won higher Camels grades in 1997, or 4.12% of the 7,994 exams done that year.
Experts predicted the downward trend will continue, and even accelerate.
"I think it will, definitely, and faster as this slowdown continues," former FDIC Chairman L. William Seidman said in an interview Wednesday. "There is nobody that better reflects the economy than banks, except they are always a lagging indicator."
Mr. Seidman attributed the Camels downgradings to banks that finally tightened loan standards, forcing them to reclassify credits that had been granted in earlier, better economic times. "About 1998 is when the banks realized that prosperity was starting to erode their positions," he said. "Banks had loosened their standards because things looked too good. So the lower rankings are the result of their own tighter standards."
Camels scores are the industry's performance yardstick, and examiners assign a composite grade as well as individual scores on six components: capital, asset quality, management, earnings, liquidity, and sensitivity to risks (risk management). Camels scores range from 1 to 5, with 1 reserved for the industry's best performers.
Though the downward trend began in 1998, last year was the first in which scores in all six Camels categories were negative, meaning the number of downgradings exceeded the number of improved grades in each category. FDIC officials agreed that the negative trend is likely to continue but said the industry's overall performance is still relatively positive. …