Undefined 'material financial risk' in CAMELS rule draws fire

Federal regulators are facing backlash over a new proposal to update the CAMELS rating system, which is the 'health score' given to banks and credit unions. The controversy centers on a new, vague term: 'material financial risk.' Industry groups argue that because the government hasn't clearly defined what this means, regulators will have too much power to penalize banks for subjective reasons. For retailers and operators who offer consumer financing, this matters because it impacts your lending partners' risk tolerance. If a bank is worried about an ambiguous regulatory slap on the wrist, they often tighten their lending standards. This could lead to lower approval rates for your customers or a reduction in the types of financing programs banks are willing to support. When the rules for banks become unpredictable, the flow of credit to your showroom floor or service center usually slows down. The financial industry is currently pushing for specific guardrails to ensure that 'material risk' doesn't become a catch-all tool for examiners to restrict bank activities arbitrarily.

Source: American Banker — Top News

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