ALEXANDRIA, Va. -- NCUA has ended the use of the CAMEL matrix in favor of risk-based examinations, according to a letter to federal credit unions released Dec. 18.
"NCUA is concerned some credit unions may target and measure performance against the Matrix rather than focus on broader risk management. Targeting CAMEL benchmarks in the Matrix can lead to unsafe and unsound goals and may lead to poor business decisions," the agency wrote.
As one example, the agency discussed how the matrix differs from risk-based risk assessment in capital adequacy.
"The Matrix benchmark for a "1" Capital Adequacy component rating is a net worth to total assets ratio equal to or exceeding seven percent," NCUA explained. "In some cases, if risk is high and unmitigated, targeting the "1" benchmark may result in insufficient net worth relative to risk. The "1" rating benchmark may create a false sense of security when net worth should be higher."
-- dmorrison@cutimes.com
