CAMELS rating system

The CAMELS rating system is a method used by regulators to evaluate a bank's health. It assesses six key areas: Capital (financial strength), Asset quality (loan risks), Management (effectiveness), Earnings (profitability), Liquidity (ability to meet obligations), and Sensitivity to market risks (exposure to economic changes). Each area is rated from 1 (healthy) to 5 (troubled). This comprehensive review helps regulators identify banks that may need closer supervision or improvement, ensuring the stability of the financial system and protecting depositors.