My latest article in The Hill explains why CAMELS ratings, an important tool in bank regulation, must not be made public.
From the article:
Regulators rightly believe that they can help turn around troubled banks, given the time to do so. Announcing publicly the CAMELS ratings would significantly accelerate the time a poorly rated bank would have to implement corrective actions and greatly increase the failure rate. A large percentage of the banks remediate their problems after discussing their rating and don’t fail. Indeed, roughly half of the 5-rated banks ultimately recover.
In sum, the CAMELS rating system has improved bank supervision substantially and brought more uniformity and objectivity to the process. Those who would make the ratings public are simply wrong. It would lead to a significant increase in depositor stress and avoidable panics, more bank failures, much higher costs to the FDIC and the banking industry and a less competitive banking system.
Read the full article here.