U.S. regulators plan to unveil a proposal this week that would alter how bank examiners assign supervisory ratings, according to people familiar with the matter who asked not to be named. The changes would adjust the longstanding CAMELS framework, which bank supervisors use to assess institutions across capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.
Under the proposed approach, examiners would place greater emphasis on a lender's financial condition and on materially relevant risks tied to that condition. The current CAMELS grades are aggregated into an overall rating that has practical consequences for a bank - influencing the intensity of regulatory scrutiny it faces, the scope of permitted activities and the capital levels it must maintain.
Those familiar with the plan said regulators intend to refine how the "management" element is evaluated. Industry observers have raised concerns that management ratings can sometimes capture issues that are immaterial to a bank's financial health or that reflect non-financial considerations such as reputational matters.
The Bank Policy Institute, an industry trade group, has highlighted that the management component of CAMELS is an example of where immaterial and non-financial issues - including reputational risk - may be reflected in supervisory assessments. The planned revisions aim to sharpen the framework's focus on measures tied directly to a firm's financial resilience and risk profile.
The existing CAMELS construct produces an integrated rating that regulators use to determine supervisory actions and capital expectations. The forthcoming proposal would leave that core function intact while altering the rubric examiners use when assigning component scores, particularly for management.
Officials and others briefed on the proposal have not been identified publicly, and the details released this week are expected to clarify how examiners will distinguish between materially relevant governance and control weaknesses versus non-financial or immaterial concerns when arriving at supervisory grades.
Impacted sectors: Commercial and regional banking sectors, supervisory oversight functions, and capital planning processes across financial institutions.