CA DFPI Opposes FFIEC’s Proposed Changes to Bank Rating System

The California Department of Financial Protection and Innovation (DFPI) recently issued a press release regarding the comment letter it submitted, opposing certain changes to the CAMELS bank rating system that have been proposed by the Federal Financial Institutions Examination Council (FFIEC).  The FFIEC requested comments on the proposed rating system changes, including eleven specific questions.  The DFPI’s comment letter addressed both the rating system changes, generally, and all eleven questions.

In the comment letter, the DFPI opposed, among other things, the proposed changes to the rating system that would deemphasize the management component and shift focus to “material financial risk.”  The DFPI argued that the management component is important for identifying emerging risks and that “it is impossible to fully understand the overall condition of an institution without a deep understanding of the institution’s management.”  Additionally, the DFPI’s comment letter asserted that a focus on “material financial risk” would not address the root cause of problems, and would increase the risk of bank failures.

The press release stated that this was “part of [DFPI’s] ongoing work to fight back against federal financial deregulation.”