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CAMEL Ratings - Did You Know?

Did you know:

1. NCUA starting using a rating system in 1979 - it was called EWS for Early Warning System.

2. In 1987, NCUA adopted CAMEL, a huge step forward.

3. At the same time in 1987 NCUA adopted “the Matrix”. The Matrix measured financial ratio results against benchmarks for three CAMEL areas: Capital Adequacy, Asset Quality, and Earnings. These ratios directly impacted your CAMEL rating. Examiners rarely deviated from the Matrix, and when they did the result was usually a worse CAMEL rating – not better.

4. The Matrix became optional for examiner use in 1995, although many examiners exercised that optionality, as it was often easier to defend.

5. The Matrix was fully eliminated in 2007, in guidance that still rules CAMEL. The Matrix had become too much of a focus for some credit unions – who managed to the numbers instead of looking at broader risk management.

While using the Matrix was far from a science, it did have its advantages for credit union’s - as it was easier to understand and achieve a particular CAMEL rating.

Without the matrix, the CAMEL code process became more of an art than a science, albeit an art rooted in the law.

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