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.

Many credit unions have hit a rough patch. After decades of a [No. 2] rating, to have a [No. 4] may bring an unwanted and unnecessary run on the credit union. Give them some time to work it out without everyone looking over their shoulder at each move. Besides, 99% of members are 100% insured by the NCUSIF. Those that have excessive funds should do so only at their own risk. They can ask for the financials and audit reports.

Sad to say, but the rating given by NCUA is capricious and very subjective, as admitted by NCUA themselves.

Even sadder, do those ratings really reflect the status of the credit union going forward? Many credit unions had nice ratings, and less than a year later, they were toast. Ratings, by their very nature, are backwards looking, not predictive. We need the investment warning: Past performance is not an indication of future success.

Saddest of all, now that the GAO has spanked NCUA for being asleep at the switch, their ratings and findings are all about risk elimination, not risk management.

Credit unions and members deserve better from a regulator. Telling or not telling the regulators [the] CAMEL score is a diversion at best and valueless in the extreme.

The decision to allow release of the CAMEL rating was with good intention, just not well thought out.

Gregg Stockdale
CEO
1st Valley Credit Union
San Bernardino, Calif.
Assets
$34 million

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.

It is unlikely that the public would fully grasp the importance of the various aspects of the CAMEL rating system, and there are consumer-friendly financial performance ratings systems available if credit unions choose to use them for marketing purposes. Credit unions are typically audited by a public accounting firm and receive an opinion on the credit union's financials. This opinion is available to members upon request. And, for inquisitive members who want to dig deeper on the performance of any particular credit union, Form 5300 data is available free to the public through the NCUA website.

Donna Bland
President/CEO
The Golden 1
Sacramento, Calif.
Assets
$7.5 billion

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.

As for our situation in North Carolina, I am troubled by the attitude of the state regulator who seems to be proficient at stirring the pot. She [Jerrie Jay] did the same thing years ago over the courtesy pay controversy in which she took a strong a position and it turned out badly for her. As a result, some state-chartered credit unions eventually converted to federal. And now she seems to be in the same spot.

Robert Bruns
President/CEO
Charlotte Metro FCU
Charlotte, N.C.
Assets
$267 million

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.

Dennis Pierce
CEO
Community America CU
Lenexa, Kan.
Assets
$1.8 billion

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.

E. Michael Gudely
President/CEO
Innovative Business Solutions
Fort Mill, S.C.
Assets
$65 million in business loans under management

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?

It could be something similar to a bond rating. The CAMEL code is too subjective and is based many times on the individual field examiner. For example, a credit union with 9.0% net worth gets a CAMEL code 1 for capital, the same rating as a credit union with a net worth of 15.0%.

A more complex rating system would address this issue. In order to help with transparency, the NCUA should develop a rating that could be shared to all.