Assignment CAMEL rating system for depository institutes

CAMELS rating system (also referred as CELS is an uniform monitoring system to evaluate the

health of individual depository institutions (banks, credit unions...)

C = Capital adequacy; A = Assets sufficiency and quality; M = Management and governance

quality; E = Earnings development and prospects; L = Adequacy and quality of liquidity; S =

interest sensitivity of earnings and the value of assets to changes in interest rates.

Apply your learning in the course and the resources listed below to get started.

Questions:

1. Briefly provide an overview of the CAMEL scoring system for measuring the health of

the financial enterprise.

2. Provide the reasoning for each of the metrics and connect them to your learning on Risk

Management.

3. Assess the rationale for keeping the CAMEL score of a bank confidential

4. Assess the rationale why the CAMEL score of a bank should be made public.

Some Sources

Fedman, R. & Schmidt, J. (Jan 1, 1999). What are CAMELS and who should know? Federal

Reserve Bank of Minneapolis

https://www.minneapolisfed.org/article/1999/what-are-camels-and-who-should-know

https://www.fdic.gov/regulations/safety/manual/#part2

for more detailedinformation on CAMEL components.

Kline, A. (Feb 27, 2020). Why bank regulators should make their secret ratings public.

Brookings. Retrieved from

https://www.brookings.edu/research/why-bank-regulators-should-make-their-secret-ratings-public/

Conti-Brown, P. (Dec. 20, 2019). The curse of confidential financial supervisory information.

Brookings. Retrieved from

https://www.brookings.edu/research/the-curse-of-confidential-supervisory-information/

(Last modified April 29, 2020).Appendix A - NCUA's CAMEL Rating System (CAMEL).

National Credit Union Administration. Retrieved from

https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/appendix-ncuas-camel-rating-system-camel