CAMELS Rating System

CAMELS Rating System

An international bank-rating system where bank supervisory authorities rate institutions according to six factors. 

The six factors are represented by the acronym "CAMELS."
The six factors examined are as follows:

C - Capital adequacy
A - Asset quality
M - Management quality
E - Earnings
L - Liquidity
S - Sensitivity to Market Risk

Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

Composite Ratings

The rating system is designed to take into account and reflect all significant financial and operational factors examiners assess in their evaluation of an institutions performance. Institutions are rated using a combination of specific financial ratios and examiner qualitative judgments.
The following describes some details of the CAMEL system in the context of examining a credit union.

Rating 1

Indicates strong performance and risk management practices that consistently provide for safe and sound operations. Management clearly identifies all risks and employs compensating factors mitigating concerns. The historical trend and projections for key performance measures are consistently positive. Credit unions in this group resist external economic and financial disturbances and withstand the unexpected actions of business conditions more ably than credit unions with a lower composite rating. Any weaknesses are minor and can be handled in a routine manner by the board of directors and management. These credit unions are in substantial compliance with laws and regulations. Such institutions give no cause for supervisory concern.

Rating 2

Reflects satisfactory performance and risk management practices that consistently provide for safe and sound operations. Management identifies most risks and compensates accordingly. Both historical and projected key performance measures should generally be positive with any exceptions being those that do not directly affect safe and sound operations. Credit unions in this group are stable and able to withstand business fluctuations quite well; however, minor areas of weakness may be present which could develop into conditions of greater concern. These weaknesses are well within the board of directors' and management's capabilities and willingness to correct. These credit unions are in substantial compliance with laws and regulations. The supervisory response is limited to the extent that minor adjustments are resolved in the normal course of business and that operations continue to be satisfactory.

Rating 3

Represents performance that is flawed to some degree and is of supervisory concern. Risk management practices may be less than satisfactory relative to the credit union's size, complexity, and risk profile. Management may not identify and provide mitigation of significant risks. Both historical and projected key performance measures may generally be flat or negative to the extent that safe and sound operations may be adversely affected. Credit unions in this group are only nominally resistant to the onset of adverse business conditions and could easily deteriorate if concerted action is not effective in correcting certain identifiable areas of weakness. Overall strength and financial capacity is present so as to make failure only a remote probability. These credit unions may be in significant noncompliance with laws and regulations. Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Such credit unions require more than normal supervisory attention to address deficiencies.

Rating 4

Refers to poor performance that is of serious supervisory concern. Risk management practices are generally unacceptable relative to the credit union's size, complexity and risk profile. Key performance measures are likely to be negative. Such performance, if left unchecked, would be expected to lead to conditions that could threaten the viability of the credit union. There may be significant noncompliance with laws and regulations. The board of directors and management are not satisfactorily resolving the weaknesses and problems. A high potential for failure is present but is not yet imminent or pronounced. Credit unions in this group require close supervisory attention.

Rating 5


Considered unsatisfactory performance that is critically deficient and in need of immediate remedial attention. Such performance, by itself or in combination with other weaknesses, directly threatens the viability of the credit union. The volume and severity of problems are beyond management's ability or willingness to control or correct. Credit unions in this group have a high probability of failure and will likely require liquidation and the payoff of shareholders, or some other form of emergency assistance, merger, or acquisition.