CAMELS ratings
Encyclopedia
The CAMELS ratings or Camels rating is a United States supervisory rating of the bank's overall condition
used to classify the nation’s fewer than 8,000 banks. This rating is based on financial statements of the bank and on-site examination by regulators like the Federal Reserve, the Office of the Comptroller of the Currency
and Federal Deposit Insurance Corporation
. The scale is from 1 to 5 with 1 being strongest and 5 being weakest. These ratings are not released to the public but only to the top management of the banking company to prevent a bank run
on a bank which has a bad CAMELS rating.
It is a tool being used by the United States
government in response to the global financial crisis of 2008 to help it decide which banks to provide special help for and which to not as part of its capitalization program authorized by the Emergency Economic Stabilization Act of 2008
.
Credit unions in the United States
use the similar CAMEL rating system
.
based these features Credit rating agencies rate instruments proposed to issue by the respective company.
Bank condition
Bank condition is a random variable used to represent the probability of failure of a bank. The true probability of failure is unknown to depositors....
used to classify the nation’s fewer than 8,000 banks. This rating is based on financial statements of the bank and on-site examination by regulators like the Federal Reserve, the Office of the Comptroller of the Currency
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...
and Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
. The scale is from 1 to 5 with 1 being strongest and 5 being weakest. These ratings are not released to the public but only to the top management of the banking company to prevent a bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
on a bank which has a bad CAMELS rating.
It is a tool being used by the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
government in response to the global financial crisis of 2008 to help it decide which banks to provide special help for and which to not as part of its capitalization program authorized by the Emergency Economic Stabilization Act of 2008
Emergency Economic Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 (Division A of , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis...
.
Credit unions in the United States
Credit unions in the United States
Credit unions in the United States served 89 million members as of 2008, comprising 43.7% of the economically active population. U.S. credit unions are not-for-profit, cooperative, tax-exempt organizations....
use the similar CAMEL rating system
CAMEL rating system
The CAMEL rating system is a method of evaluating the health of credit unions by the National Credit Union Administration. The rating, adopted by the NCUA in 1987, is based upon five critical elements of a credit union's operations:* Capital...
.
Components
The components of a bank's condition that are assessed:- (C) Capital adequacy,
- (A) Asset qualityAsset qualityAsset quality an evaluation of an asset to measure the credit risk associated with it.-Description:Asset quality is related to the left-hand side of the bank balance sheet. Bank managers are concerned with the quality of their loans since that provides earnings for the bank...
, - (M) ManagementManagementManagement in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
, - (E) EarningsEarningsEarnings are the net benefits of a Corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT -- earnings before interest and taxes, EBITDA - earnings before...
, - (L) Liquidity and
- (S) Sensitivity to Market Risk
based these features Credit rating agencies rate instruments proposed to issue by the respective company.