Thursday, April 29, 2021
12:00 – 1:30 pm (Eastern Time)
11:00 – 12:30 pm (Central Time)
10:00 – 11:30 am (Mountain Time)
9:00 – 10:30 am (Pacific Time)
A few years ago, a large depository was placed on the FDIC’s list of “Problem Banks.” Surprisingly at 3/31/18 the institution placed on that inauspicious list had assets of $42.5 billion and it was “well capitalized.” So, what happened? Why would this large depository profitable, well capitalized institution be considered a problem bank?
There is more than meets the eye. The inclusion on the list of problem banks for that institution turned out to be the result of regulatory on-site examinations that followed a system called CAMELS. The initials stand for the six regulatory on-site examination components which are C-A-M-E-L-S:
- Capital Adequacy
- Asset Quality
- Sensitivity to Market Risk
As most attendees are aware, in the US the regulatory framework is widespread. The Federal Financial Institutions Examination Council (FFIEC) is the umbrella body for the various regulators. The FFIEC consists of the:
- Federal Reserve Bank (FRB) – Regulates the Bank Holding Companies
- Federal Deposit Insurance Corporation (FDIC) – Regulates insured Commercial Banks
- Office of the Comptroller of the Currency (OCC) – Regulates thrifts (savings banks, saving associations and savings and loans institutions)
- National Credit Union Association (NCUA) – Regulates Credit Unions
Implications for Bankers
We all are familiar with the regulators use of the Call Report as a regulatory tool. However, the FFIEC regulatory responsibilities are satisfied, in large part, by the on-site examinations, performed by regulators that, among other things, focus on the Uniform Financial Institutions Rating System (UFIRS), also known as the CAMELS rating system.
Every FDIC-insured depository institution is subjected to rigorous examinations that follow the CAMELS system.
The results of CAMELS examinations are not made public. Each bank, after each examination, is assigned an overall CAMELS rating. For each component a rating is assigned after careful examination. The ratings are from “1” – the best rating to “5” – the worst rating. There is also an overall rating for the overall institution being examined by the regulator.
This 90-minute accounting webinar reviews each of the components and exactly what are the concerns of the regulator when performing the on-site examination of each component. Attendees obtain valuable insight about the CAMELS issues considered important from the regulator’s viewpoint.
The primary focus of the webinar is the “C” component where the regulator is interested in whether the institution has maintained and will be able to continue to maintain capital in relation to the nature and extent of risks (credit, market, interest-rate risk etc.). For the “C” component and the other components each webinar attendee receives valuable, actionable information for understanding, evaluating and acting on potential risks and compliance challenges.
Also, among other capital issues, regulators want to see if management has the ability to identify, measure, monitor and control the risks that could interfere with its capital requirements.
This accounting webinar allows attendees to focus on key areas of CAMELS considered important to the regulators. It also helps attendees prepare adequately for the inevitable on-site examination by one of the FFIEC regulatory bodies. It helps a bank stay off the list of “problem banks,” even if it is a large, profitable, well capitalized organization.
Each bank takes their CAMELS rating seriously. So do the regulators.
Paul J. Sanchez, CPA, CBA, CFSA conducts a CPA practice in Port Washington, New York. He is also the owner of Professional Service Associates (PSA), a consulting and professional training and development business servicing corporate clients (auditors, controllers, etc.), CPA firms, professional associations and others. He was an assistant professor at Long Island University – C.W. Post Campus as well as an adjunct lecturer at City University of New York. Prior to starting PSA, he was the Vice President-Professional Development for the Audit Division of a regional bank and Director of Professional Practices and Vice President of a money-center bank, where he directed the professional practice development and training for internal auditors.
1.5 CPE Credits & 1.8 AAP Credits