CAMELS Rating [CAMELS]

CAMELS is a supervisory rating system used by U.S. federal banking regulators to assess banks’ overall condition through six components: Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. Each component receives a rating from 1 (best) to 5 (worst), with a composite rating determining supervisory actions. For example, a bank with composite rating 1 or 2 is considered satisfactory, while 4 or 5 indicates serious problems requiring immediate intervention. Capital adequacy examines whether capital levels support risk profile. Asset quality evaluates loan portfolio and credit risk management. Management assesses board and senior management effectiveness. Earnings reviews profitability and sustainability. Liquidity ensures adequate funding sources. Sensitivity measures interest rate and market risk exposure. CAMELS ratings remain confidential but influence regulatory actions, deposit insurance premiums, and expansion approvals. Banks rated 3 face increased supervision, those rated 4 enter troubled status with restrictions, and rating 5 triggers potential closure. International variations include CAMEL (without Sensitivity) and CAEL for credit unions.