The Great CAMEL Kerfuffle

I have followed the NCUA/NC CAMEL disclosure discussions with great interest. It has turned into quite a kerfuffle – which means a commotion or a fuss. Not really the phrasing I wanted to use, but I don’t want us to lose the “G” rating given to our blog commentary. In any case, here is what I think…all credit unions should be required to release their CAMEL ratings. Here’s why…

Members deserve it.

Think about what the CAMEL rating system is used for. It is a “a method of evaluating the health of credit unions by the National Credit Union Administration(NCUA).”1 Members deserve to know what the outcome of this analysis tells about the credit unions they own. Yes, I know that every credit union publishes reams of financial data for members to evaluate, but given the general complexity of financial statements, believing members will understand them requires quite the leap of faith.

Adding the NCUA’s 5-point CAMEL score to other data released to members will do no harm, and in fact will give members a simplified scale allowing them to pick up on serious issues – and perhaps even drive them to exercise ownership-based engagement with board members elected to represent their interests.

Some have argued that releasing a bad score might cause a run on credit union deposits. Any argument that includes the word “might” is rather weak to begin with, but beyond that if a credit union is getting a deserved 4 or worse they should be communicating to members regarding the problems facing the institution well before a score is even published. A 4, or any other rating for that matter, should not be a surprise if member-owners are well-informed to begin with.

In any case, I do think there is something more to the NCUA’s concerns regarding the release of CAMEL ratings than whether the act is legal (it is not, according to NCUA commentary). Consider this…

NCUA examiners have used threats of CAMEL rating downgrades in order to facilitate operational changes they believe are required in order to reduce risk at certain credit unions they are examining.2 Should publishing CAMEL scores in the public domain become an acceptable and legal practice, the potency of their threats would severely decline.

Certainly on occasion the changes demanded by regulators are warranted, but not every time. Sometimes the changes requested are based on erroneous assumptions made by individual examiners. In my opinion, knowing that the results of their exam would become fodder for public discussion would eliminate some of the more subjective aspects of the examination process. I don’t believe NCUA really wants the subjective removed from the process – hence the vigorous stand against CAMEL rating disclosure.

(I have a funny story I would love to tell that is very related to this last point, but it would get a client of mine in some hot water if I were to share it – which I suppose proves the point I am trying to make.)

The NCUA rebuts arguments for CAMEL disclosure, after stating the illegality of such an action, by saying that the release of CAMEL data “could” threaten the NCUASIF. They seem to envision legions of members stampeding the vaults of credit unions marked with a scarlet number 4, or 5 and thereby causing expensive credit union failures. In this argument, however, we see the word “could” – which is quite close to “might.” What proof do we have that this could happen? None. It could just as easily lead to strengthening the NCUASIF as it could to weakening it.

In his comment to one of the industry’s trade publications, the CEO of the credit union that published its CAMEL rating, Jim Blaine, was quoted as saying there is no harm in shining a little light under the rock. To that end, Jim let it be know that his credit union’s CAMEL rating was a 2 on a scale of 1-5, with 1 being the best. That’s a pretty good score.

Perhaps the credit union community should take a page from Bank Transfer Day and hold a CAMEL Rating Release Day. All together, all at once, let’s shine a little light under the rock. What great harm will it (not could it) do?


Glatt Consulting publishes the Credit Union Industry HealthScore, which is based on the combined health scores of all federally-insured credit unions. The HealthScore is similar in structure to the CAMEL rating system, though in our case 5 represents the strongest possible score and 0 represents the weakest. We typically do not publish individual credit union scores, but taking the lead from Mr. Blain, State Employees Credit Union of North Carolina has a HealthScore of 3.455,. This is well above the national industry score of 2.341.      


1: Wikipedia

2: This statement is based on commentary received from Glatt Consulting clients as well as direct conversations with members of the industry press, who have confirmed having similar conversations with credit union leaders across the country.

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