The Massachusetts Division of Banks announced on December 18 that it added “Sensitivity to Market Risk” as a standalone component of its Risk Management examinations.
As a result, the rating system’s acronym will change from CAMEL to CAMELS.
Sensitivity to Market Risk is generally described as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect earnings and/or net worth. For most institutions the analysis will focus on interest rate risk.
This change will go into effect for all examinations commencing after April 1, 2015.
Massachusetts Division of Banks noted that at least five state credit union regulators have already adopted the FFIEC’s CAMELS rating system for credit union examinations.
However, the National Credit Union Administration (NCUA) has not adopted Sensitivity to Market Risk as a standalone component for its safety and soundness exams.
As I stated on August 25, NCUA needs to show some leadership by adding a standalone Sensitivity to Market Risk component to its safety and soundness examinations.
Read the letter.
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