TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
It is a longstanding policy of the Federal Reserve to discuss fully and clearly
in examination and inspection reports, and in meetings with senior management and boards
of directors, supervisory issues, problems, or concerns relating to the institutions under the
System's supervision. It has also generally been Federal Reserve practice for some time to
provide to senior management and directors the single word descriptions corresponding to
the numeric component ratings assigned under the Uniform Financial Institutions Rating
System (CAMEL). In an effort to further strengthen communication with supervised
institutions, beginning January 1, 1997, the Federal Reserve will provide the numeric and
alphabetic component ratings assigned under various supervisory rating systems to senior
management and directors. Building upon existing practice, this step is intended to better
focus management attention on possible areas of weakness and the need for timely
corrective actions. This step is also consistent with a recent recommendation from the
FFIEC regarding disclosure of the numeric component ratings assigned under CAMEL.
Each Reserve Bank should direct its examiners to begin disclosing component
ratings as soon as possible, but no later than January 1, 1997, in summary sections of
examination/inspection reports and directors' summaries, as necessary, and in meetings
with senior management and directors. This directive applies to the following rating
systems:
It also applies to the alphabetic component ratings assigned to management under the
BOPEC rating system and to the alphabetic components assigned under the Transfer Agent
rating system. General guidance on the disclosure of composite and component ratings in
examination and inspection reports is attached to this SR letter.
In the context of the exit meeting, the examiner should discuss key overall
examination findings, including composite and component numeric ratings. Consistent
with current practice, ratings are subject to a review by Reserve Bank supervisory officials,
and final ratings should be included in the examination or inspection report. In disclosing
composite and component ratings, the examiner-in-charge should remind management that
the ratings assigned are a part of the findings of the examination or inspection and are
privileged and confidential under applicable law. If composite and component ratings are
changed between examinations and inspections as a result of off-site analysis,
management and directors should be informed of the change.
Reserve Banks should inform state banking authorities in their districts of the
decision to disclose component ratings and should explain the reasons for this change in
Federal Reserve procedures prior to beginning disclosure of component ratings.
Component ratings assigned under AEP arrangements by state agencies should be treated
by the Reserve Banks in a manner that is consistent with the state's policy regarding
disclosure.
The guidance included in this SR letter is to be applied going forward,
consistent with the approach taken by the other banking agencies. In general, component
ratings assigned in the past should be treated in accordance with the policy prevailing at
the time.
A copy of this letter should be provided to each institution supervised by the
Federal Reserve. If there are any questions relating to the disclosure of component ratings,
please contact Connie Powell, Supervisory Financial Analyst, at (202-452-3506), or Kevin
Bertsch, Supervisory Financial Analyst, at (202-452-5265).
Director
in Examination and Inspection Reports
This listing should be followed by the uniform definition of the assigned
composite rating. The uniform definitions of the component ratings assigned need not be
included in reports; however, they should be made available to management and directors
upon request.
When combined examination/inspection report formats are used, similar
matrices for each composite and component rating assigned should be included in the
report.
Numeric and alphabetic component ratings should also be included on the
pages of reports that discuss findings related to the components. For example, for bank
examination reports, the numeric component rating assigned to capital should appear on
the capital page of the report. In the case of examinations of independent data processing servicers and financial institutions that provide servicing to other insured financial institutions, examination reports are sometimes provided not only to the examined data processing servicers but also to the institutions that receive servicing from these servicers. Accordingly, in these cases, the composite and component ratings assigned under the Uniform Interagency Rating System for Data Processing Operations should be provided to senior management and directors in the transmittal letter accompanying the examination report rather than in the open section of the examination report.1
Footnotes 1. Additional guidance on the disclosure of composite and component ratings for examinations of information systems will be issued by the FFIEC in the near future. Return to text |
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