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February 28, 2020

Better Markets Comment Letter on Request for Information on Application of the Uniform Financial Institutions Rating System

The CAMELS supervisory ratings system plays an essential role in promoting the safety and soundness of banks individually and the banking system as a whole.  Through assessments and associated ratings, supervisors identify, and alert bank management to, potential problems at a bank before those problems turn into a bank failure that puts taxpayer dollars at risk.  Further, they may lead to appropriate sanctions when a rating indicates material problems in one or more of the components.  As the Request notes, bank ratings inform the bank application process, ensuring that poorly managed banks do not expand inappropriately and increase the threat they may pose to the financial system.   They are also used to determine whether targeted examinations or formal enforcement actions are necessary and appropriate.  Given the importance of a strong supervisory system, any changes in the CAMELS ratings contemplated by the Agencies must be supported by a credible, evidence-based rationale that provides the public with a meaningful opportunity to comment.  And the Agencies should not weaken the link between supervisory assessments and enforcement actions.

A request for information to inform possible future rulemaking can, at times, be a useful exercise.  However, the lack of any supporting rationale for this Request and any clear indication of what specifically the Agencies plan to do with the resulting information is troubling.  Moreover, to the extent the Request portends a de-regulatory proposal that will weaken the important CAMELS rating system or seek to break the link between supervisory assessments and possible sanctions on banks, we firmly oppose such steps.

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