The federal banking agencies have proposed on May 19, 2026 the most significant overhaul of the CAMELS supervisory rating system in nearly 30 years, signaling a major philosophical shift in bank supervision under the Trump Administration. The proposal, issued by the Federal Financial Institutions Examination Council (“FFIEC”), would revise the Uniform Financial Institutions Rating System (“UFIRS”) to place greater emphasis on material financial risks and less emphasis on process-oriented supervisory criticisms. The FFIEC is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. The FFIEC is composed of the following five voting members: Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
The CAMELS framework, which evaluates a financial institution’s Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk, has long been one of the most consequential supervisory tools used by federal and state banking regulators. CAMELS ratings can affect merger approvals, branching authority, expansion activities, enforcement exposure, and whether a bank is considered “well managed” for purposes of federal banking law.
The proposal represents the first comprehensive revision to the system since 1996. According to the FFIEC, the revised framework is intended to “strengthen the link between CAMELS ratings and a financial institution’s safety and soundness” by focusing ratings on factors that materially affect a bank’s financial condition and risk profile while improving supervisory transparency and predictability.
One of the most important aspects of the proposal is the reduced prominence of the “Management” component. Banking industry participants have long complained that examiners have used management criticisms, often tied to documentation, governance, policies, procedures, or compliance process concerns, to downgrade composite ratings even where a bank remained financially strong. The proposal appears designed to address those concerns.
Under the current framework, “special consideration” is given to the Management component when determining a bank’s composite CAMELS rating. The proposed changes to the evaluation factors limit the Management component’s evaluation factors to the most material aspects of risk management, helping to strengthen the link between supervisory ratings and safety and soundness. Specifically, the proposal would remove factors related to: “Management depth and succession,” “Responsiveness to recommendations from auditors and supervisory authorities,” and “Demonstrated willingness to serve the legitimate banking needs of the community.” Additionally, the factor related to the overall performance of the institution and its risk profile would be removed to limit redundancy, since it would be addressed through the composite and other component ratings. Finally, a material financial risk threshold would need to be met for assigning Management ratings of 3 or worse based on risk management weaknesses.
The proposal also would revise component and composite rating definitions to focus more explicitly on material financial risk. Regulators stated that institutions with strong financial performance and only weak or moderate risk-management concerns generally should remain eligible for stronger ratings, while institutions with significant financial weaknesses or significant legal noncompliance would receive lower ratings. The proposal would change the composite 3 definition to state that financial institutions that receive this rating should exhibit less than satisfactory financial performance or inadequate risk management practices that result in material financial risk to the institution.
The initiative reflects a broader supervisory reform effort being led by Michelle Bowman Vice-Chair for Supervision of the Federal Reserve Board of Governors, and supported by other Trump-appointed financial regulators. In announcing the proposal, Bowman stated that the revised framework “marks a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight.”
Similarly, Jonathan Gould, Comptroller of the Currency, emphasized that the revisions would move supervision “away from process-heavy oversight toward a stronger focus on material financial risk.”
Although the proposal may be embraced by banks that have expressed frustration in recent years with what they viewed as increasingly subjective supervisory expectations, it remains unclear how much practical change the proposal ultimately will produce. Even under the revised framework, examiners would still evaluate governance, risk management, internal controls, audit functions, and legal compliance. Critics may argue that supervisory judgments inevitably involve qualitative assessments and that reducing emphasis on management-related weaknesses could diminish supervisory effectiveness. The proposed changes are especially noteworthy because CAMELS ratings are confidential. Unlike many other regulatory actions, banks generally cannot publicly challenge examination ratings. As a result, revisions to the standards governing those ratings can have enormous practical significance for supervised institutions.
Comments on the proposal are due by August 17, 2026.
The proposal can be viewed in the Federal Register here: Federal Register Notice on the Uniform Financial Institutions Rating System
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