OLYMPIA, Wash.—Include the Washington Division of Credit Unions among the growing number of state regulators adding sensitivity to market risk—“S”—to their CAMEL rating system.
The Washington Division of Credit Unions made the decision so that it can better evaluate the impact of interest rate changes on a credit union’s earnings and economic capital, it explained in a bulletin. The change, the Division stated, will allow the regulator to provide information to credit unions delineating between liquidity and interest rate risks.
“In order to improve our discussion on interest rate risk, we decided to expand the CAMEL rating to better reflect our analysis of whether changes in interest rates will adversely affect a credit union’s earnings and economic capital,” the bulletin explained. “We will continue to use the same examination procedures for examining liquidity and interest rate risks. However, by adding the ‘S’ and using the CAMELS rating, we will provide better information to credit unions to clearly delineate our analysis between liquidity and interest rate risks.”
The Division anticipates adding the “S” component rating in the spring of 2015.
In December, the Massachusetts’ state regulator made the same move. (http://www.cutoday.info/Fresh-Today/Mass.-State-Regulator-Adds-S-To-CAMEL-Ratings)
At the time the Massachusetts Division of Banks said sensitivity to market risk was being given its own component rating rather than being included as a factor in the “Liquidity” or “L” component rating to reflect the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect earnings and/or net worth.
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