What are CAMELS Ratings? Is My Bank Okay?

By Anthony M. Freed

So the FDIC has issued a list of more than one-hundred troubled banks – but they won’t tell you who they are? (See Graphs – Not Laughs – From the FDIC Report August 26, 2008)

Not very Civil for Servants!  Well then, I suppose I will try to point you in the right direction so you may answer some of the questions yourself. 

First, go to the Federal Reserve Bank of San Francisco website and read about their CAMELS Ratings – the system for determining the relative strengths and weaknesses of lending institutions.

All exam materials are highly confidential, including the CAMELS. A bank’s CAMELS rating is directly known only by the bank’s senior management and the appropriate supervisory staff. CAMELS ratings are never released by supervisory agencies, even on a lagged basis. While exam results are confidential, the public may infer such supervisory information on bank conditions based on subsequent bank actions or specific disclosures. Overall, the private supervisory information gathered during a bank exam is not disclosed to the public by supervisors, although studies show that it does filter into the financial markets.

Nice!  I mean we are all adults here, right?.  We all need information like this in order to make adult decisions, right?  And there is this from the last place I look for info, Wiki:

CAMELS ratings in U.S. are intended to reflect the evaluation of regulators and supervisors about bank condition. These evaluations are not publicly released but only given to the bank managers. Banks pay deposit insurance premium to the FDIC based on their rating.

A 1 or 2 rating bank do not pay a premium since it is considered to be safe. This is ironic, given the fact that one-third of the 1037 banks that failed between 1984 and 1992 have had a 1 or 2 rating (deemed very safe) only two years prior to their failure.

Oh, that is why they won’t tell us – they don’t mean anything…


Second thing you can do, now that you are armed with some basic knowledge, is read Is My Bank Safe?.  It has the link and how-to for checking your bank’s health on-line. 

Lastly, if this is not enough for you, I suggest this other WIKI article that goes more in-depth describing Fractional-Reserve Banking, an interesting explanation of the system in general.

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