Vox Populi: Should Credit Union Release Their CAMEL Codes?
First, Bauer Financial already risk rates credit unions for free. Any member can check it out.
Second, slippery slope. Once people start releasing this information, those that don't will be suspect of hiding something.
The NCUA has been very clear on this matter. CAMEL ratings are to remain confidential. Because most credit unions are federally insured, the NCUA should have the right to determine actions that can and cannot be allowed when there is a potential impact on the strength of this insurance fund.
If the NCUA allowed public disclosure of CAMEL ratings, credit unions choosing to publish their No. 1 rating would have a distinct marketing advantage, while those without published ratings would be conspicuously absent. This could lead the public to assume that a higher degree of risk would be present at any credit union that did not publish a CAMEL rating. This impression could prompt account closures, which would ensure weakened performance of otherwise strong credit unions thereby weakening the strength of the NCUA insurance fund.
I really have a very mixed view of the issue. On one hand, I understand and appreciate the importance of transparency regarding a credit union’s financial condition. But on the other hand, release of that kind of information creates public confusion of those credit unions that are truly ailing and those that are not.
Just because one credit union received a lower CAMEL rating does not mean that it is going down the tubes. And yet, the public might interpret that condition, leading to unforeseen circumstances. But any time such a rating is put out, it rings all kinds of bells and creates all kinds confusion on dispersal of dividends. And there are questions on how they are extended for one credit union and not another.
I personally don’t see great value in releasing CAMEL codes. They are kind of a double-edged sword. If your rating is high, you will want to use this to tout to existing members, attract new members, etc. However, if you find your rating is lower than expected, it’s not likely you’ll want to share. Either way, explaining the calculations that go into determining CAMEL ratings can be perceived as overwhelming, complex, and, ultimately, the whole thing can be confusing to members. Transparency is definitely important, but credit unions should always strive to be transparent and provide the best service to members no matter what their CAMEL code is.
I’m not a credit union so the CAMEL issue is not related to our CUSO. However, the primary reason regulatory ratings, state or federal, are not released is to prevent a run on banks or credit unions.
Most people don’t realize it’s not capital that takes a bank or credit union down. It’s a lack of liquidity. Although credit unions are flush with cash today due to stagnant loan demand, they don’t have anywhere close to the liquidity they need if members rushed in to take their deposits. Like an insurance company, a credit union might have anywhere from 10% to 30% of cash on hand. The rest is in loans, fixed assets, etc.–too illiquid to meet all members’ demands for their deposits.
I think credit unions should be able to share some sort of rating with membership, but not necessarily their CAMEL codes.
Members want to make sure they are doing business with a financial institution that is solid and stable. Many of today’s consumers are not trained in deciphering financial statements or Call Reports, so why don’t we have something we can share?