On CAMEL Ratings and ATM Lawsuits

March 20, 2013 at 7:54 am Leave a comment

I hate to kick a dead horse (actually my wife says I love kicking dead horses), but in today’s paper is an article that last January the O.C.C. downgraded the management category of J.P. Morgan’s  CAMEL rating from a 2 to a 3.  It is not yet clear whether J.P. Morgan’s composite CAMEL was downgraded as a result.  The article intrigued me for several reasons, not least because it’s nice to see the big guys subjected to some of the same regulatory pressure faced by everyday financial institutions.  In theory, that should not be big news, but in reality it is.

What really intrigues me more, though, about the news is that it once again highlights NCUA’s grotesque overreaction to the decision of North Carolina’s State Employees Credit Union to release its CAMEL rating with the approval of its state regulator.  I should not have to remind you that NCUA punished North Carolina state chartered financial institutions by conducting its own examination of these entities until such time as North Carolina’s banking regulator cried uncle and promised not to authorize the release of the sacrosanct ratings again.  I wonder if the O.C.C. is conducting an internal investigation this morning as to how this ratings information was disclosed to the public.  I wonder if they are preparing for an onslaught of members running to their own institutions demanding to know how their management acumen was assessed in their latest examination?  My guess is no.  The O.C.C. has better things to do and, at the end of the day, the public is better off knowing that examiners are questioning J.P. Morgan’s management.  It will better enable shareholders to more carefully hold one of the largest banks in the world accountable for overseeing its assets.

Which brings me back to NCUA.  It argues that publicly disclosing CAMEL ratings will damage other credit unions that choose not to disclose this information.  I guess in a worse case scenario members might actually start refusing to join or pulling their money out of credit unions with low CAMEL ratings.  The public doesn’t understand that CAMEL ratings are ultimately an examiners snapshot in time and by keeping them private, regulators can scrutinize credit union performance and give credit unions the opportunity to make necessary improvements outside of the public spotlight.

This all sounds good, but much of it is nonsense.  My latest compromise proposal is to allow credit unions over a certain asset size, let’s say $2 billion or more, to release their CAMEL rating if they choose to do so.  The reality is that the bigger you are, the more scrutiny you should be under and CAMEL ratings could provide an important proxy for credit union members to assess the performance of management teams.  My guess is that the vast majority of large credit unions would pass public scrutiny with flying colors, that their choice to disclose their CAMELs to the public would trigger little attention from the wider public and that at the end of the day it would simply provide one more example of how credit unions truly are cooperatives dedicated to making sure their members control their own money.  If it’s good enough for J.P. Morgan, it should be good enough for us.

ATM Disclosure Bill Introduced 

Yesterday, Annette Robinson, the Chairwoman of New York State Assembly Banks Committee, introduced legislation with the support of the Credit Union Association of New York, that would amend New York’s law so that New York State credit unions or banks would no longer have to post an ATM fee sign outside of their ATMs in addition to providing an electronic notice to members that a fee may be charged for an ATM transaction.  As you undoubtedly recall, Congress passed a law eliminating the ATM sign posting law as a federal requirement after an increasingly large number of bottom-feeding lawyers were bringing class action suits against financial institutions that were not posting the signs.  But since New York has its own independent requirements, we need the law changed in order to have the same rights as credit unions that simply have to comply with federal law.  Remember that members will still be getting notice that an ATM fee will be imposed on the computer screen prior to making the transaction, so the law still provides adequate consumer protection.

Entry filed under: Advocacy, Compliance, New York State, Regulatory. Tags: , , , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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