CAMELS, CCAR and CLA
Robert Geary is the founder of Greenwich Risk Management Advisory Services “LLC” and services as the principal consultant on many of the firm’s consultancy mandates.
Robert has been a banking and finance industry professional for 49 years with 34 years serving in a variety of senior Treasury, financial markets, asset management, and risk management roles at JP Morgan Chase & Co. During his career with JP Morgan Chase, he served in the following positions
- Head of Chase Manhattan Bank’s euro and other offshore funding activities
- Chase’s first Asia/Pacific Area Treasury and Financial Markets Executive located in Hong Kong with responsibility for the treasury, currency trading/sales activities and securities portfolios of Chase’s branches in nine countries that included the major centers of Japan, Hong Kong, and Singapore
- Western Hemisphere Area Treasury and Financial Markets Executive with similar responsibilities for Chase’s branches in South America, Canada, Panama, and Puerto Rico
- National Sales Manager for Chase Securities
- Treasury and Financial Markets General Manager for Chase AMP Bank in Australia
- Risk Management and Treasury Executive for Chase’s Asset Management and Private Bank organizations
- Head of the risk management oversight function of Market, Credit and Operational Risk for Chase Asset Management
- Managing Director and Head of Fiduciary Risk Management for the Corporation
During Robert’s career he has served on the Board of Directors of Chase Manhattan Overseas Banking Corporation as well as having served on numerous senior committees that included Chase’s Portfolio and Investment Strategy Committee, Tax Committee, International Asset/Liability Management Committee, Chase Investment Policy Committee, and Capital Markets & FX Risk Management Committee. Prior to joining Chase, he held positions at Chemical Bank, Chrysler Financial Corporation and National Bank of North America.
Robert holds a BA degree in Economics from Pace University and did graduate studies in finance at New York University Graduate School of Business. He is a Past President of the New York Athletic Club and is currently a member of the Executive Advisory Board of St. John’s University Department of Accounting and Taxation.
US bank regulators have continued to enhance their oversight of the major areas of risks to banks. The major risk evaluation and rating programs that have been introduced are CAMELS, CCAR and CLAR. This presentation provides for a thorough review and understanding of these programs.
CAMELS is one of the most significant evaluation methodologies for banks employed by US regulators, namely the Federal Reserve Bank, Comptroller of the Currency and Federal Deposit Insurance Corporation. CAMELS is the titling of the rating system employed by these regulators with the titling standing for each of the components contained in the evaluation methodology. Specifically, a bank’s condition is evaluated and rated with respect to Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity and Sensitivity to Market Risk. The evaluation conducted by this program is intense and quite detailed and, based on a bank’s CAMELS evaluation, a bank is given a rating for each individual CAMELS component as well as an overall composite rating. It is imperative that a bank understands the CAMELS evaluation process, how the evaluation of each component is formulated, how ratings are established and the impact of a rating on a bank’s present and planned business initiatives. The understanding of CAMELS must exist with executive management, senior business management as well as with all staff responsible for the management of the elements of each CAMELS component. This presentation addresses:
- The evaluation considerations that are applied for each CAMELS component,
- How these considerations translate into the rating of each component,
- The meaning of each component rating
- Actions that may be required by a rating
- The formulation of a bank’s CAMELS composite rating
- The meaning of a composite rating
Commensurate with the CAMELS evaluation, the FRB conducts two related evaluations:
- CCARS which is a “Comprehensive Capital Analysis and Review”, and
- CLAR which is a “Comprehensive Liquidity Assessment and Review”
Both these evaluations not only test a bank’s capital adequacy and liquidity management they also address a bank’s management policies, procedures, and practices that ensure a bank’s ongoing ability to maintain appropriate capital and liquidity standards.
To provide an in-depth understanding of CAMELS in terms of evaluation methodology, rating determination, and rating implications. To generate a focus on the management of each CAMELS component and assist in the identification of areas for management attention.
To establish an understanding of the CCAR and CLAR evaluation programs and the associated responsibilities of bank management to effectively respond to CCAR and CLAR.
Areas Covered (With Respect to CAMELS)
- Identify the CAMELS components
- Assessment of Capital quality
o Financial condition; Capital needs; Problem loans; Reserves
- Assessment of Asset quality
o Credit initiation practices; Substandard credit quality; Diversification; Reserves; Securities underwriting; Counterparty exposures; Loan policies; Credit management; MIS; Documentation
- Assessment of Management quality
o General quality; Planning; Policies and controls; MIS; Risk monitoring; Audit responses; Depth and succession; Performance and risk profile
- Assessment of Earnings quality
o Level; Retained earnings; General quality; Expenses; Budgeting and forecasting; Loan loss provisions; Market risk exposure
- Assessment of Liquidity quality
o Liquidity sources; Asset liquidity; Funding sources; Liability maturity structure; Deposit stability; Asset securitization; General management
- Assessment of Sensitivity to Market Risk quality
o Economic change; Measurement; Nature of risk; Trading activity
o Particular focus on interest rate risk
- Composite rating methodology
o Rating denotations
o Rating formulation
o Rating implications
Areas Covered (With Respect to CCAR and CLAR)
- Objectives of CCAR & CLAR
- CCAR &CLAR methodologies & evaluation components
- Bank Management considerations
- Evaluation results & consequences
Who Should Attend
This webinar will provide valuable assistance to all those with general management responsibility and those with specific management responsibility for the quality of a bank’s:
- Market Risk
- Board oversight and executive management
- Treasury management
- Risk management
- Compliance management
- Regulators with bank evaluation responsibility
- Universities with banking curriculum in their degree programs
Why Should Attend
To gain an in-depth understanding of the CAMELS methodology and evaluation process in order to prepare for evaluation and address any deficiencies that may exist before a CAMELS evaluation is conducted. To gain an in-depth understanding of the FRB’s approach to its CCAR and CLAR evaluation considerations, processes and ratings.
The US bank business environment has experienced a variety of issues and problems over the years and US regulators are diligent in ensuring that a bank meets a required standard in key operating areas of a bank which, if not met or are considered substandard, may impact the ongoing viability of a bank. The US regulators continue to engage in improving their assessment methodologies and monitoring processes of banks, thereby increasing the level of bank management attention to the subject areas being evaluated.
Management responded to the subject areas of the CAMELs evaluation exits with a bank’s:
- Board of Directors
- Executive management
- Senior business management
However, the specific management of each subject area rests with the staff that is charged with the responsibility of meeting and maintaining the standards set by the regulators for each component.
This presentation dissects each of the CAMELS components in terms of the regulators’ evaluation methodology for each component used to assess structural considerations and the quality of management afforded each component. It continues to address the rating process of each component and the considerations underpinning each rating. Lastly, it addresses the composite rating process and the considerations underpinning each rating.