The CAMELS rating system is a supervisory rating system to classify the overall condition of a bank according to six factors. The acronym CAMELS represents the six factors of capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk.
The CAMELS rating systems helps supervisory authorities identify banks that are struggling in these areas. Using the rating system, banks are assigned a score on a scale of one, being the best, to five, being the worst, in each factor. Banks with an average score of less than two are considered to be high-quality institutions, while banks with an average greater than three are considered to be lower-quality and in need of attention.