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Regulators request public comments on bank soundness rating system

The Federal Reserve Board and the Federal Deposit Insurance Corporation are asking for public comment on the rating system examiners use to grade banks' soundness and risk.

The agencies are seeking feedback on the Uniform Financial Institutions Rating System, also known as the CAMELS rating system, which evaluates banks' capital, asset quality, management, earnings, liquidity, and sensitivity to market risk.

Regulators are seeking to gather comments on how the CAMELS ratings are assigned to banks and to learn what the implications of those ratings are in enforcement action processes, to bring more transparency to the system. Regulators are also considering whether the ratings are assigned in a consistent way across different banks. The agencies are not modifying the ratings definitions or changing the rating system.

Under the Federal Deposit Insurance Act, a federal banking agency conducts an on-site examination of an insured depository institution once every 12 months or 18 months, depending on the institution. After completion of the examination, the CAMELS rating is assigned.

The rating is on a scale of 1 to 5, where 1 is the highest rating indicating the strongest performance and risk management practices, and 5 is the weakest rating. Each of the evaluated metrics is assigned a score, and the bank also receives a composite score.