In an interview with Bloomberg BNA, Pinchus Raice, Co-Chair of Pryor Cashman's Financial Institutions Group, discussed the surprising legal challenge mounted by an Illinois community bank in the closely-watched Builders Bank v. Federal Dep. Ins. Corp. case.
In that case, the now-shuttered Builders Bank has asked a federal judge to review the CAMELS rating of "4" it received from the Federal Deposit Insurance Corporation (FDIC). The rating, Builders Bank contends, triggered higher costs for insurance premiums and should be reviewed by a court because it does not accurately reflect the bank's risk profile.
As Bloomberg explained, the importance of a CAMELS rating cannot be overstated. The ratings, which are also used by the Federal Reserve and the Office of the Comptroller of the Currency, measure capital, assets, management, earnings, liquidity and sensitivity to market risk on a range of 1 to 5, with 1 being the best rating. A poor rating can mean the end of a business plan for banks and affiliates.
Speaking to Bloomberg, Raice, who has successfully appealed CAMELS ratings assigned to national and state-chartered banks, opined that judges should be permitted to review the FDIC's CAMELS rating determinations.
Judicial review would enhance the integrity of bank examinations, he said. "I think it would increase confidence in the process," Raice remarked. "Somebody should be looking over the shoulders of the agency, because CAMELS ratings are critical to the life of an institution."
To read the full Bloomberg article, please click here.
More About Raice's Practice
As co-chair of Pryor Cashman's Financial Institutions Group, Pinchus Raice represents financial institutions, their boards of directors and executive officers in intra-agency appeals, enforcement actions – including those seeking civil money penalties and removal and prohibition orders – and other contested administrative and court proceedings. He has particular expertise advising clients on CAMELS ratings and challenging such ratings at the appellate level.
To learn more about his work, please visit here.
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