Report on Wells Fargo's CAMELS Rating and Associated Risks

This report provides an analysis of Wells Fargo's CAMELS rating, a system used to assess the financial condition of banking institutions. The report examines Wells Fargo's rating, which was affected by issues in organizational structure and weaknesses in its defense mechanisms against illegal activitie...Read More

Running head: CAMELS RATINGS
Camels Ratings
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1CAMELS RATINGS
Table of Contents
Camels rating for Well Fargo:.........................................................................................................2
Risk related to the institutions:........................................................................................................2
References:......................................................................................................................................4

2CAMELS RATINGS
Camels rating for Well Fargo:
For gauging the financial situation of any financial institution, an US system is designed
that includes Camels. Camels’ abbreviation is used for Capital adequacy, Assets, Management
Capability, Earnings, Liquidity and Sensitivity. Certain tests are conducted for making the
ratings such as on-site invigilation, ratio analysis and the overall market performance of the
concerned organization. Like Likert scale, the rating is made by using the scale of 1-5, in which
5 rating is deemed to be the worst and 1 is adjudged as the best (Dincer, Yuksel & Hacioglu,
2015).
From the latest reports, it could be seen that Wells Fargo had Camels rating of 3 in
relation to the management. Despite the high confidentiality of this rating, there are leaks when
requirements arise for modifying the operating style of an organization. The above rating is not
deemed to be suitable, as it denotes issues in organizational structure and this mandates the
requirement for supervision. Despite the absence of failure risk, the same has to be addressed
effectively so that complete failure of the organization could be avoided accordingly (Nicolae &
Maria-Daciana, 2014). For Wells Fargo, there has been a broad speculation that the rating was
provided for raising the pressure on the controller office of currency so that increased
enforcement action could be undertaken against the organization. Although Wells Fargo held
positive brand image, the failure of the organization in building sound defense mechanism
opposed to illegal activities and frauds has resulted in fall in rating.

3CAMELS RATINGS
Risk related to the institutions:
Wells Fargo is exposed to certain risks like varying economic situations in the US
banking sector after the occurrence of the global financial crisis in 2008 (Rahman & Masngut,
2014). There has been downfall of the US economy in areas such as real estate and housing and
they are yet to gain full pace. The banks rely largely on these sectors, as they are their significant
business sources. Any fall in these organizations results in slow progress of the US banking
industry. As a result, stringency in regulations could be observed more in the recent era. The
financial institutions have been under increased vigilance in the current period (Rostami, 2015).
Therefore, Wells Fargo is compelled to behave more morally than before owing to the
status as one of the biggest banks in USA. This results in increased risk of buying bad loans, loss
of revenue from servicing along with holding on to mortgages for increased timeframe. The
recent risk encountered by the organization is the fall in Camels rating owing to any external
influential dynamic that could not be controlled directly, since the rating has effect on the
business reputation along with the chance of loss of market share owing to adverse situations or
negligence impacting the organization.

4CAMELS RATINGS
References:
Dincer, H., Yuksel, S., & Hacioglu, U. (2015). CAMELS-based Determinants for the Credit
Rating of Turkish Deposit Banks. International Journal of Finance & Banking
Studies, 4(4), 1.
Nicolae, B., & Maria-Daciana, R. C. (2014). Study regarding the financial stability of
commercial banks listed on Bucharest Stock Exchange of CAMELS rating
outlook. Journal of International Studies, 7(3), 133-143.
Rahman, R. A., & Masngut, M. Y. (2014). The Use Of" CAMELS" In Detecting Financial
Distress Of Islamic Banks In Malaysia. Journal of Applied Business Research, 30(2),
445.
Rostami, M. (2015). Determination of Camels model on bank’s performance. International
journal of multidisciplinary research and development, 2(10), 652-664.