US bank regulators have continued to enhance their oversight of the major areas of risks to banks. The major risk evaluation and rating programs that have been introduced are: CAMELS, CCAR and CLAR. This presentation provides for a thorough review and understanding of these programs.
CAMELS is one of the most significant evaluation methodologies for banks employed by US regulators, namely the Federal Reserve Bank, Comptroller of the Currency and Federal Deposit Insurance Corporation. CAMELS is the titling of the rating system employed by these regulators with the titling standing for each of the components contained in the evaluation methodology. Specifically, a bank’s condition is evaluated and rated with respect to: Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity and Sensitivity to Market Risk. The evaluation conducted by this program is intense and quite detailed and, based on a bank’s CAMELS evaluation, a bank is given a rating for each individual CAMELS component as well as an overall composite rating. It is imperative that a bank understands the CAMELS evaluation process, how the evaluation of each component is formulated, how ratings are established and the impact of a rating on a bank’s present and planned business initiatives. The understanding of CAMELS must exist with executive management, senior business management as well as with all staff responsible for the management of the elements of each CAMELS component.
CCAR and CLAR are two other significant evaluation methodologies for banks employed by US regulators to address a bank’s current and forecasted capital and liquidity conditions. They are intended to ensure that a bank has a long-term planning program for both its capital and liquidity requirements. The evaluation incorporates stress testing into its programs for each. Ratings are given for each are given on pass or fail basis and here also executive management, senior business management as well as with all staff responsible for the management of a bank’s capital and liquidity understand the CCAR and CLAR evaluation process and its rating system.