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The full form of CAMELS is Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market risk. It is a ranking system which is utilized by the regulatory authorities to rank the performance of banks and other financial institutions. Initially, it was just CAMEL but later in 1995, the OCC and Federal Reserves added ‘S’ i.e. sensitivity to market risk in CAMEL that makes it CAMELS. Each element of CAMELS displays specific aspects that indicate the stability of business or financial institutions to withstand various risks.
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What is CAMELS: Full Form
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The candidates who wish to build their careers in banking must be familiar with CAMELS. CAMELS is an international rating system and is the most frequently asked questions in the exams. So, as a student you must be aware about the system and its usage as it is used in the real world also.
The RBI officials use the CAMELS system to analyze the strength and ability of the banks through sex parameters. The Reserve Bank of India ranks the financial institutions on a scale of 1 to 5. If any bank is ranked at 1 then, it is a financially stable bank in terms of market risk and if the bank is ranked at 5 then, it is in the worst condition in terms of market risk.
Also Read: Career in Banking
Uses of CAMELS
This international system is used for a number of purposes. The financial regulatory authorities of the world use it to analyze the overall health and stability of any financial institution.
Mentioned below are some of the major uses of CAMELS:
- Risk Management
- Early Warning to the banks
- Supervisory assessment
- Comparative Analysis
- Enforcement actions
- Capital Planning
- Policy Formulation
- Market Discipline
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