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CAMEL Matrix gone for exams after Jan. 1
WASHINGTON (12/19/07)--Starting Jan. 1, the National Credit Union Administration (NCUA) will eliminate the CAMEL Matrix and focus CAMEL evaluations on “risk consistent with NCUA’s Risk Focused Examination Program (RFE),” the agency said yesterday. In its decision, NCUA cited concerns that some credit unions may target and measure performance against the Matrix rather than focus on broader risk management. “Targeting CAMEL benchmarks in the Matrix can lead to unsafe and unsound goals and may lead to poor business decisions,” said NCUA in a letter to federally insured credit unions. By eliminating the Matrix, NCUA said the focus will be on “evaluating a credit union’s goals and determining strategic plans are realistic, tailored to the credit union’s unique needs, reflective of the current economic environment, and ultimately, in the best interest of the membership.” The agency pointed out that the Matrix maintained an element of controversy even after it became an optional examiner tool because credit unions “do not have identical risk profiles or business models.” The Matrix applied static ratio benchmarks to every credit union. The NCUA said its examiners will continue the RFE practice to assign CAMEL component and composite codes for examination and supervision contacts. It said examiners will assign the “C”, “A”, and “E” component ratings without a matrix following the approach currently used for assigning the “M” and “L”. The RFE practice to disclose CAMEL component ratings and the overall rating in the Examination Report Overview will continue. “When a CAMEL component or composite rating changes, examiners will inform management,” wrote the agency. “Disclosing ratings facilitate understanding of NCUA’s assessment of the credit union’s overall operation.” According to the letter, NCUA staff that use CAMEL will receive training prior to implementation. “This same training will be made available to state supervisory authority staff that needs to be aware of NCUA’s CAMEL Rating System,” it said. Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said NCUA earlier this year briefed several CUNA committees about the upcoming changes. Dunn said she believed the Matrix elimination is positive for credit unions and consistent with NCUA's risk focused examinations. “We plan to work with NCUA and credit unions to monitor the agency's implementation of the changes to help ensure that is the case, and we want to hear from credit unions if they have concerns about the implementation of the CAMEL changes,” said Dunn. Use the link below to access NCUA’s complete letter to credit unions.
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