Helfer Says Banks Should Receive Breakdown on Camel Performance

Regulators should start letting banks know how they fared on each component of the Camel rating, Federal Deposit Insurance Corp. Chairman Ricki Helfer said.

The change would be part of an overall move toward better risk analysis by the banking agencies, Ms. Helfer said last week at an FDIC conference on derivatives.

"The traditional Camel rating system involves risk analysis," she said to an audience of bank regulators, derivatives experts, and a few banking trade group representatives. "The analysis, however, is not as systematic as it could or should be."

Telling banks how they rate on the each of the Camel components - capital, assets, management, equity, and liquidity - would give bank boards earlier notice of problems and focus more attention on risk management, Ms. Helfer said.

Regulators also need to do a better job of incorporating economic data into their risk analysis of individual banks, she said.

"I do not think that we should scrap the Camel rating system," she said. "Although we may want to produce the next generation of Camel."

When bank regulators unveiled Camel in 1979, they decided against telling banks their scores on individual components for fear that the ratings were imprecise and that bankers would concentrate on the scores instead of on substantive issues.

Ms. Helfer's remarks on Friday followed announcements late last year by the Office of the Comptroller of the Currency and the Federal Reserve Board that they are changing their exams to better measure how well banks are managing risk.

For the moment, the FDIC won't do anything as formal as the OCC, which will soon be scoring large banks on their exposure to and management of nine categories of risk, or the Fed, which is now including a formal risk management score as part of the "M" in its Camel ratings.

But in the second quarter of this year, FDIC examiners - who supervise more than 7,000 of the country's 12,000 banks and thrifts - will start judging a bank's interest rate risk using new flow charts designed to focus their attention on potential problems.

Similar flow charts will follow for credit risk and other exam areas, said Nicholas J. Ketcha Jr., the agency's director of supervision.

Also, Ms. Helfer said, the FDIC's new division of insurance will try to translate economic data into forms useful for examiners in judging individual banks' risk exposure.

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