"CAMELS" model is effective, efficient and also accurate to be used as a performance evaluator in the banking sector and also to anticipate the future as well as the relative risk. "CAMELS" ratios are thus calculated so as to focus on the financial performance.
The following are the CAMEL scores for various banks:
| Bank | CAMEL Score |
| JPMorgan Chase | 1 |
| Bank of America | 2 |
| Wells Fargo | 2 |
| Citigroup | 2 |
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It should be noted that a score of 3, 4 or 5 is sufficient to expose a financial institution to formal and informal enforcement actions that are usually available to federal regulators (Reddy & Prasad, 2011) . The regulatory tools include a MOUs menu, cease and desist orders as well as consent orders. Additionally, there are prompt directives actions written agreements that have been imposed in an escalating way if the CAMEL scores of an institution fail to improve (Reddy & Prasad, 2011) . The enforcement action that is usually implemented affects the banks in various ways. For instance, they influence their access to capital, the ability to recruit or maintain talent in the institution as well as insurance costs. In order for an organization to avoid being a subject to the enforcement measures, there is importance in monitoring the CAMEL scores and also a full understanding of the factors that are capable of influencing the composition that is basic concern for all bank directors (Reddy & Prasad, 2011) . Finally, it is important to note that the banks mentioned above have similar risks as follows:
Moral hazards
Banks are continuously being exposed to taking excessive risks. If the risk that they take pays off, they are in a position to keep the returns. If the risk backfires, the taxpayers bear the costs in the form of bailouts (Reddy & Prasad, 2011) . The model has led to a situation where banks become reckless in the process of trying to get profits (Mishra & Aspal, 2012) . Banks do not shy away from engaging in risky businesses when they are not under regulatory oversight although the central banks in many parts of the world use audits to enhance safe business practices,
Liquidity Risk
Liquidity risk can be said to be another risk that is intrinsic in the banking industry. Liquidity risk is where the bank will not be in a position to meet all its responsibilities if depositors want to withdraw their cash (Mishra & Aspal, 2012). The risk is intrinsic in the partial reserve banking system (Reddy & Prasad, 2011). This means that in this system, only a certain percentage of the money received get held back to be reserves, while the rest is used to give loans.
Today, banks have no concern about the liquidity risk. The reason is because they boast of the backing of the central bank. In case there appears a run on a certain bank, the central bank is going to divert all its resources towards the bank affected. In the long run, the customers can be repaid when they want their deposits (Mishra & Aspal, 2012). This is important in restoring customer’s confidence in these banks cash and the run on these particular banks is therefore averted.
Business Risk
Today, banks have a wide variety of methodologies from which they can choose. For instance, if one strategy is chosen, the financial institution is required to focus the resources they have on obtaining strategic goals in the end of the process (Reddy & Prasad, 2011). Therefore, there will always be a risk that a certain bank chooses the incorrect strategy. As a consequence of the incorrect choice, the bank will suffer losses and get acquired or it might simply collapse.
References
Mishra, S., & Aspal, P. (2012). A camel model analysis of State Bank Group.
Reddy, D. M., & Prasad, K. V. N. (2011). Evaluating performance of regional rural banks: an application of CAMEL model. Researchers World , 2 (4), 61.
