Davis Polk partner and Financial Institutions practice head Margaret Tahyar discussed the CAMELS rating system with American Banker. 

CAMELS is an international rating system that bank supervisory authorities use in order to rate financial institutions according to six components: capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.

Margaret explained that often the evaluation focuses more on processes than outcomes. “It’s about checks and balances, making sure the appropriate people make the appropriate decisions in the appropriate way, not about making dozens of committees,” she explained. “It shouldn’t be about making a big internal bureaucracy.”

Margaret added that a fresh look at the CAMELS system is overdue, and while any revisions to the framework should preserve examiner judgment, it should also place stricter guardrails around them.

“Supervisors have to be able to exercise judgment – but the question is, when they are exercising qualitative judgment, are they doing it around a quantitative standard or is it totally unmoored?” Margaret said. “The discretion needs to be anchored to something empirical.”

“Examiner discretion takes center stage in CAMELS debate,” American Banker (May 12, 2025) (subscription required)

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