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Appeal of Composite and CAMEL Ratings - (Third Quarter 2006)


The boards of directors of a group of banks, collectively, appealed to the Ombudsman the composite and CAMELS ratings assigned by the supervisory office in the most recent report of examination.

The banks expressed concern that they were being evaluated collectively as a complex institution rather than as less complex, separate, and independent institutions.  While all the banks appealed their composite rating, they each appealed different component ratings.  The banks requested that the supervisory office apply the rating summary matrix and description on risk management systems relative to a bank's size, complexity, and risk profile as stated in OCC Bulletin 97-1, "Uniform Financial Institutions Rating System and Disclosure of Component Ratings," (January 7, 1997).


The Ombudsman conducted a review of the information submitted by the banks and supporting documentation from the supervisory office.  The review included discussions with the banks' senior management as well as with members of the supervisory office.

While the chosen corporate structure is comprised of individually chartered financial institutions, it is evident from these discussions that the bank management teams are significantly influenced by one major principal.  Additionally, the organizational structure provides for centralized decision-making and back-room operations.  Furthermore, the Ombudsman found that risk management systems throughout the banks warrant significant improvement in the areas of credit administration, nonaccrual accounting, and budget reporting.


The Ombudsman concluded that the composite and CAMELS ratings as assigned by the supervisory office in the report of examination were appropriate.  The Ombudsman encouraged the banks to strengthen their overall risk management practices in the lending area and formalize their planning and budgeting processes to assist them in addressing potential risk exposures.