Term
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Definition
Capital adequacy -- as defined by the Capital Ratio {Capital / Assets}
Asset quality -- the Federal Reserve assesses the banks' loan and security portfolios using the 5 C's of credit
- Capacity -- the borrower's ability to pay
-Collateral -- the quality of the assets that back the loan
- Condition -- the circumstances that led to the need for funds
- Capital -- the difference between the value of the borrower's assets and its liabilities
-Character -- the borrower's willingness to repay loans, as measured by its payment history
Management --the single most common cause of bank failure-- administrative skills, ability to comply with existing regulations, and ability to cope with a changing environment.
Earnings: Return on Assets
Liquidity:ability to obtain funds from internal sources
Sensitivity: recall GAP management |
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Term
| CAMELS Rating System: Assets Quality |
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Definition
Capacity -- the borrower's ability to pay
Collateral -- the quality of the assets that back the loan
Condition -- the circumstances that led to the need for funds
Capital -- the difference between the value of the borrower's assets and its liabilities
Character -- the borrower's willingness to repay loans, as measured by its payment history |
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Term
| CAMELS Rating System Defined |
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Definition
The primary rating system for banks as well as the other depositories.
Each CAMELS characteristic is rated on a 1 - 5 scale, with 1 indicating outstanding and 5 very poor. A composite rating of 4.0 or higher is considered to be a problem institution and will be closely monitored.
Bank regulators, primarily the FDIC, the Federal Reserve, and the Comptroller of the Currency, conduct on-site examinations of each commercial bank at least once a year. In these examinations, regulators assess the bank's compliance with existing regulations and its financial condition. In addition to the on-site examinations, regulators periodically monitor commercial banks with computerized monitoring systems, based on data provided by the banks on a quarterly basis. |
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Term
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Definition
| An analysis conducted under unfavorable economic scenarios which is designed to determine whether a bank has enough capital to withstand the impact of adverse developments. Stress tests can either be carried out internally by banks as part of their own risk management, or by supervisory authorities as part of their regulatory oversight of the banking sector. These tests are meant to detect weak spots in the banking system at an early stage, so that preventive action can be taken by the banks and regulators. |
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