Camels Rating System for Assessing Bank Performance

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About the CAMELS Rating System for Assessing Bank Performance Initially the Uniform Financial Institutions Rating System use CAMEL. CAMEL made reference to five components of banks financial condition that are use in assessing the banks in 1997 a six components was added “S” Sensitivity to Market Risk therefore the acronym was changed to CAMELS. Uniform Financial institutions Rating System is known as the CAMELS rating system. The CAMELS rating system is a rating system that is international and examiners us its six factors to rate institutions. Uniform Financial institutions Rating System includes in their consideration certain financial, managerial, and compliance factors which are the same for all institutions. Under the CAMELS rating system, the supervisory agencies strives to make sure that evaluation of all financial institutions are uniformed and covers a large scope. In addition that there is appropriate supervisory attention which focuses on the financial institutions is included to identify both financial and operational weakness, or trends which are unfavorable. (FDIC, 2009, FDIC Law, Regulation, Related Acts: UNIFORM FINANCIAL INSTITUTIONS RATING SYSTEM) The CAMELS rating system was initially adopted in 1979. The CAMEL rating system has 6 components they are as follows: C = Capital adequacy, A = Asset quality, M = Management quality, E = Earnings, L = Liquidity, S = Sensitivity to Market Risk. When examiners use the CAMELS rating system to examine the financial strengths and weakness of a financial institution they assign both a composite and a component rating which can be anywhere from 1 through 5 in their evaluation of a financial institution. . A rating of 1 is an indication of the highest ratings a financial institution can receive, it indicates that the financial institution has a strong performance and excellent risk management practices

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