America’s Credit Unions submitted a letter to the Federal Financial Institutions Examination Council (FFIEC) yesterday in response to their proposed changes to the Uniform Financial Institutions Rating System, otherwise known as CAMELS. In the letter, America’s Credit Unions voiced its support for the changes, stating that they will allow for more consistent ratings.

“America’s Credit Unions strongly supports the proposal’s overall direction. CAMELS ratings should reflect a financial institution’s actual financial condition and material safety and soundness risks. They should not be driven by examiner preferences, immaterial documentation concerns, or process issues that do not create real risk to the institution,” wrote Luke Martone, Regulatory Advocacy Senior Counsel for ACU.

Following their acknowledgement of support, ACU encouraged several specific changes to CAMELS:

1. Removing additional weight given to the Management aspect of the rating system, which they believe affects scores too drastically
2. Only consider Speciality Review Findings as a part of the rating if the findings truly “affect the credit union’s overall financial condition, present material financial risk, or reflect significant noncompliance with law.”
3. Tying rankings to real and tangible safety and soundness risks, as giving a credit union a three or higher will alter governance and operations of the credit union. For example, those credit unions will require more board meetings than required by the new Credit Union Board Modernization Act.
4. Limiting “additional factors” and removing the “but not limited to…” from the language altogether in order to reduce uncertainty.
5. Considering the credit union difference when choosing the ranking, understanding that credit unions are not banks and just because a smaller credit union does not line up to the practices of a big bank does not mean the credit union is less sound.
6. Implementing the changes properly and thoroughly to ensure consistency across the board.

“This proposal is an important step toward a more transparent and consistent examination framework. It would reduce the special weight currently given to the Management component and focus the Management rating more clearly on material financial risk,” wrote Martone.

“It would also limit the effect of specialty review findings and remove references to reputation risk, which should not reappear under another label. These changes would improve the CAMELS framework for all covered financial institutions. They are especially important for credit unions, where examination ratings can affect major operational and strategic decisions.”

Read the full letter.