Revision of CAMEL Rating System Effective January 1, 1997
January 3, 1997
Circular No. 10905

To the Chief Executive Officers of All State Member Banks in the Second Federal Reserve District:

The following is from a press release issued by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has announced adoption of a revised interagency Uniform Financial Institutions Rating System (UFIRS), commonly known as the CAMEL rating system, to include an increase in the emphasis on risk management processes and the addition of a sixth rating component for sensitivity to market risk.

The revised rating system is effective January 1, 1997, for use at examinations of state member banks.

The existing CAMEL rating system produces a composite rating of an institution's overall condition and performance by assessing five components: Capital adequacy, Asset quality, Management administration, Earnings, and Liquidity.

The updated rating system now will be referred to as the CAMELS rating system, to include Sensitivity to Market Risk.

The UFIRS is an internal supervisory tool used by Federal supervisory agencies represented on the Federal Financial Institutions Examination Council (FFIEC) to evaluate the soundness of financial institutions on a uniform basis and to identify those institutions requiring special supervisory attention or concern.)

The text of the new UFIRS, effective January 1, 1997 as published in the Federal Register of December 19. The proposed revision was contained in this Bank's Circular No. 10864, dated August 8, 1996.

Questions on this matter may be directed, at this Bank, to any member of your portfolio management team in the Bank Supervision Group.