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Financial Institution Letter

Adoption of Revised "Camels" Rating System

SUBJECT: Adoption of Revised FFIEC Policy Statement on Uniform Financial Institutions Rating System 

On December 20, 1996, the FDIC Board of Directors adopted the Federal Financial Institutions Examination Council's (FFIEC) updated statement of policy entitled "Uniform Financial Institutions Rating System" (UFIRS). The updated UFIRS replaces the 1979 statement of policy and is effective January 1, 1997. Attached is a copy of the notice that was published in the Federal Register on December 19, 1996. 

The UFIRS is an internal rating system used by the federal and state regulators for assessing the soundness of financial institutions on a uniform basis and for identifying those institutions requiring special supervisory attention. Under the existing UFIRS, each financial institution is assigned a composite rating based on an evaluation and rating of five essential components of an institution's financial condition and operations. The five component areas are Capital adequacy, Asset quality, Management, Earnings, and Liquidity. 

The basic structure and framework of the existing UFIRS has been retained. The major changes include an increased emphasis on the quality of risk management practices and the addition of a sixth component for Sensitivity to market risk. As a result, the updated rating system now will be referred to as the "CAMELS" rating system. The updated rating system also reformats and clarifies component rating descriptions and component rating definitions, revises composite rating definitions to parallel the other changes in the rating system, and highlights risks that may be considered in assigning component ratings. 

The new sixth component addresses the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution's earnings or capital. For most institutions, market risk primarily reflects exposures to changes in interest rates. The new component also focuses on an institution's ability to monitor and manage its market risk, and will provide institution management with a clearer and more focused indication of supervisory concerns in this area. The Sensitivity component is not expected to create a regulatory burden on financial institutions. 

In July, the FFIEC published a notice in the Federal Register requesting comment on the proposed revisions to the UFIRS. The FDIC and the other three federal regulators also field- tested the updated rating system between July and October 1996. The attached notice contains a discussion of the specific changes made to the proposed UFIRS based on the comments received from the public and from the four agencies' examiners. 

The Division of Supervision has instructed its examiners to begin using the CAMELS rating system on all examinations started on or after January 1, 1997, the date recommended by the FFIEC in the attached Federal Register notice. The composite rating and component ratings under the revised UFIRS will continue to be disclosed to the institution's board of directors and senior management. 

For further information, please contact your Division of Supervision Regional Office or Daniel M. Gautsch, an Examination Specialist in the Office of Policy, at (202) 898-6912. Specific questions regarding the new Sensitivity component can be directed to John Feid, Chief, Risk Management Unit, Office of Capital Markets, at (202) 898-8649.

Nicholas J. Ketcha Jr.


PDF Format (64 kb, PDF help or hard copy ), HTML Format 


FDIC-Supervised Banks (Commercial and Savings) 


Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, N.W., Room 100, Washington, D.C. 20434 ((703) 562-2200) 

Last Updated: December 26, 1996