US Bank Major Regulator Risk Evaluation Programs: CAMELS, CCAR and CLAR

OVERVIEW

US bank regulators have continued to enhance their oversight of the major areas of risks present in a bank. The major risk evaluation and rating programs that have been introduced are: CAMELS, CCAR and CLAR. This presentation provides for a thorough review and understanding of these programs.

CAMELS is one of the most significant evaluation methodologies for banks employed by US regulators, namely the Federal Reserve Bank, Comptroller of the Currency and Federal Deposit Insurance Corporation. CAMELS is the titling of the rating system employed by these regulators with the titling standing for each of the components contained in the evaluation methodology. Specifically, a bank’s condition is evaluated and rated with respect to: Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity and Sensitivity to Market Risk. The evaluation conducted by this program is intense and quite detailed and, based on a bank’s CAMELS evaluation, a bank is given a rating for each individual CAMELS component as well as an overall composite rating. It is imperative that a bank understand the CAMELS evaluation process, how the evaluation of each component is formulated, how ratings are established and the impact of a rating on a bank’s present and planned business initiatives. 

The understanding of CAMELS must exist with executive management, senior business management as well as with all staff responsibility for managing the elements of each CAMELS component.
This presentation addresses:

• The evaluation considerations that are applied for each CAMELS component,
• How these considerations translate into the rating of each component,
• The meaning of each component rating
• The formulation of a bank’s CAMELS composite rating
• The meaning of a composite rating
• Actions that may be required by an established rating

Commensurate with the CAMELS evaluation, the FRB conducts two related evaluations:

• CCARS which is stands for “Comprehensive Capital Analysis and Review”, and
• CLAR which stands for “Comprehensive Liquidity Assessment and Review”

Both these evaluations not only test a bank’s current capital adequacy and liquidity adequacy, they also address a bank’s management policies, procedures and practices that ensure a bank’s ongoing management ability to maintain appropriate capital and liquidity standards.

WHY SHOULD YOU ATTEND?

Attend the webinar to gain an in depth understanding of the CAMELS methodology and evaluation process in order to prepare for an evaluation and address any deficiencies that may exist before a CAMELS evaluation is conducted.

The US bank business environment has experienced a variety of issues and problems over the years and US regulators are diligent in ensuring that a bank meets a required standard in key operating areas of a bank which, if are not met or if are considered substandard, may affect the ongoing viability of the bank. The US regulators continue to engage in improving their assessment methodologies and monitoring processes, thereby increasing the required level of bank management attention to the subject areas being evaluated.

Management responsibility to the subject areas of the CAMELs evaluation exits with a bank’s:

• Board of Directors
• Executive Management
• Senior Business Management.

However, the specific management of each subject area rests with the staff that is charged with the responsibility of meeting and maintaining the standards set by the regulators for each component of CAMELS as well as the components of the CLAR and CCAR regulatory evaluation programs.

This presentation dissects each of the CAMELS components in terms of the regulators’ evaluation methodology for each component to assess structural elements of each component and secondly, to assess the quality of management afforded each component. It continues to address the rating process of each component, the considerations underpinning each rating and lastly, it addresses the possible bank initiatives to be taken given a rating.

This presentation dissects each of the CAMELS components in terms of the regulators’ evaluation methodology for each component to assess structural elements of each component and secondly, to assess the quality of management afforded each component. It continues to address the rating process of each component, the considerations underpinning each rating and lastly, it addresses the possible bank initiatives to be taken given a rating.

AREAS COVERED

With respect to CAMELS, Areas Covered in the Session:

• Identify the CAMELS components
• Assessment of Capital quality
       * Financial condition; Capital needs; Problem loans; Reserves
• Assessment of Asset quality
      * Credit initiation practices; Substandard credit quality; Diversification; Reserves; Securities underwriting; Counterparty exposures; Loan policies; Credit management; MIS; Documentation
• Assessment of Management quality
       * General quality; Planning; Policies and controls; MIS; Risk monitoring; Audit responses; Depth and succession; Performance and risk profile
• Assessment of Earnings quality
       * Level; Retained earnings; General quality; Expenses; Budgeting and forecasting; Loan loss provisions; Market risk exposure
• Assessment of Liquidity quality
       * Liquidity sources; Asset liquidity; Funding sources; Liability maturity structure; Deposit stability; Asset securitization; General management
• Assessment of Sensitivity to Market Risk quality
       * Economic change; Measurement; Nature of risk; Trading activity
       * Particular focus on interest rate risk
• Composite rating methodology
       * Rating denotations
       * Rating formulation
       * Rating implications

With respect to CCAR and CLAR, Areas Covered in the Session:

• Objectives of CCAR & CLAR
• CCAR & CLAR methodologies & evaluation components
• Bank Management considerations
• Evaluation results & consequences

WHO WILL BENEFIT?

This webinar will provide valuable assistance to all those with a bank’s overall general management as well as those with specific management responsibility for the quality of the following areas of a bank: Capital, Assets, Liquidity, Market Risk, Earnings, Board oversight and executive management, Treasury management, Risk management, Compliance management. Auditors, regulators with bank evaluation responsibilities, and universities with banking curriculum in their degree programs would also benefit from the webinar.

This webinar is designed for:

• Board of Directors
• Executive Managers
• CFOs
• Senior Business Managers
• Senior Credit Management
• Treasury Managers
• Dedicated Risk Managers
• Dedicated Compliance Managers
• Regulatory Staff
• Auditors
• University Program Educators

                  * Business degrees
                  * Accounting degrees
                  * Risk Management degrees

Others Details

During the webinar you’ll gain an in depth understanding of the FRB’s approach to its CCAR and CLAR evaluation considerations, processes and ratings as well as preparing for evaluations.