The proposed changes would refocus supervisory ratings on material financial risks, reduce the influence of the Management component, and increase transparency across the framework.

By Arthur S. Long, Pia Naib, and Deric Behar

Link to Key Points Key Points

  • The Proposal would remove the “special consideration” historically given to the Management component in determining composite ratings.
  • A composite rating of 3 or worse would generally require evidence of material financial risk, not just process or documentation deficiencies, thus establishing a clearer threshold for increased supervisory concern.
  • The scope of evaluation factors would be narrowed by replacing open-ended “but not limited to” language regarding factors that influence ratings with a framework that permits additional factors only when justified by exceptional circumstances, with documentation requirements for examiners.
  • All references to reputation risk would be removed from the UFIRS, consistent with recent parallel actions by the Federal Reserve, OCC, FDIC, and NCUA.

On May 19, 2026, the Federal Financial Institutions Examination Council (FFIEC)1 issued a request for comment on proposed revisions (the Proposal) to the Uniform Financial Institutions Rating System (UFIRS) (commonly referred to as the CAMELS rating system), applicable to all national banks and federal savings associations.

The Proposal follows an extensive FFIEC review of the UFIRS and would maintain the basic CAMELS rating system framework while advancing certain modifications to the component and composite rating definitions and related evaluation factors. In the Proposal, FFIEC writes it seeks to “strengthen the link between ratings and a financial institution’s safety and soundness” by more clearly articulating CAMELS ratings expectations for financial institutions. The Proposal would focus CAMELS ratings on factors that materially affect an institution’s financial condition and risk profile while reducing attention on concerns related to policies, procedures, and documentation.

FFIEC believes that the Proposal, if implemented, would increase transparency in supervisory expectations of institutions and, as a result, promote more efficient use of management time and resources, and potentially reduce compliance costs and uncertainty. Ultimately, according to FFIEC, the changes may enhance individual institution safety and soundness and “contribut[e] to the safety and soundness of the banking system overall.”

The comment period is open until August 17, 2026, which is 90 days after publication in the Federal Register.

Link to The UFIRS and CAMELS Rating System The UFIRS and CAMELS Rating System

The FFIEC developed the UFIRS in 1979 for federal and state supervisory agencies to assess, identify, and communicate threats to the safety and soundness of financial institutions on a uniform basis, and for identifying institutions in need of heightened supervisory attention. The supervisory agencies use the UFIRS to “monitor the severity of problems that financial institutions may be experiencing, determine the level of supervisory concern that is warranted, and monitor aggregate trends in the condition of financial institutions.”

Supervisors assign a composite rating to each institution and rate six components: Capital Adequacy; Asset Quality; Management; Earnings; Liquidity; and Sensitivity to Market Risk. Financial institutions are assigned ratings on a scale of 1 to 5 for each CAMELS component and a composite rating (with 1 being the highest rating). A better composite rating (i.e., “well managed” status) allows a financial institution more freedom to engage in certain expansionary business activities, such as merchant banking investment for financial holding companies.

Link to Proposed Modifications to the UFIRS Proposed Modifications to the UFIRS

Link to Reduced Focus on the Management Component Reduced Focus on the Management Component

The UFIRS framework directs examiners to give “special consideration” to the Management component of CAMELS for purposes of the composite rating. FFIEC believes that while important, this language may “be interpreted as diminishing the relative importance of the non-Management components in the determination of composite ratings.” The Proposal would therefore remove the special-consideration directive in the UFIRS and promote a “more balanced approach” to the component ratings.

Link to Management Component Rating Amended Management Component Rating Amended

To focus the UFIRS on the most material aspects of risk management and strengthen the link between supervisory ratings and safety and soundness, 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.” The factor related to the overall performance of the institution and its risk profile would also be removed as redundant with the composite rating. Furthermore, Management ratings of 3 or worse would be narrowed to practices that result in material financial risk to the institution, such as weak risk management, unreliable financial or regulatory reporting, failure to safeguard assets, or significant noncompliance with law or regulation.

Link to Specialty Review Findings Deemphasized Specialty Review Findings Deemphasized

Under the current framework, supervisory findings from specialty reviews2 may be incorporated into the Management component rating and “can contribute to ratings downgrades even when they do not reflect material financial risks to the institution.” The Proposal would therefore clarify that specialty review findings may be considered in CAMELS ratings only to the extent that they implicate a financial institution’s overall financial condition, material financial risks, or significant noncompliance with laws and regulations.

Link to Risk Management Language Clarified Risk Management Language Clarified

The Proposal would remove broad language in the Capital Adequacy, Asset Quality, Earnings, Liquidity, and Sensitivity to Market Risk components regarding the “ability of management to identify, measure, monitor, and control” risk, and instead focus on more specific and measurable risk management practices for each component.

Link to Evaluation Factors Clarified Evaluation Factors Clarified

Under the current framework, component ratings are based on — but not limited to — an assessment of a specific set of evaluation factors unique to each component. The Proposal would remove this open-ended language from all components. In its place, it would introduce a general paragraph applicable to all components that would permit consideration of additional evaluation factors “only if warranted by exceptional circumstances or evolving business practices” and “critical to the assessment of an institution’s financial condition or risk profile with emphasis on material financial risks.” To promote certainty and transparency around the rating-evaluation factors, examiners would be directed to document and explain the rationale for the inclusion of such additional factors.

Furthermore, specific evaluation factors of various CAMELS components would be amended to clarify and standardize supervisory evaluations, prioritize issues that materially affect an institution’s financial condition and risk profile, and establish clearer expectations for financial institutions.

Link to Component Ratings Definitions Clarified Component Ratings Definitions Clarified

The Proposal would amend the UFIRS component rating definitions to introduce more consistent terminology and a more streamlined structure, with an emphasis on more specific and transparent language in describing a financial institution’s financial condition and risk management practices.

Link to Composite Rating Definitions Clarified Composite Rating Definitions Clarified

The Proposal would amend the UFIRS composite rating definitions to establish clearer thresholds that focus on an institution’s financial condition and risk profile, with an emphasis on material financial risks.

Link to Framework Language Modernized and Conformed Framework Language Modernized and Conformed

The Proposal would make general amendments to the UFIRS framework to modernize and conform language and to update terminology to reflect current industry standards and accounting practices.

The Proposal would also remove all references to reputation risk in the UFIRS, consistent with the recent policy updates by the FRB, OCC, FDIC, and NCUA (for more information, see these Latham blog posts here, here, and here).

Link to Request for Comment Request for Comment

The FFIEC included a general request for comment on all proposed amendments. It also included 11 additional questions covering various issues, such as:

  • whether the proposed revisions enhance the effectiveness of UFIRS as a supervisory tool for evaluating the safety and soundness of financial institutions;
  • whether the proposed revisions appropriately balance consideration of an institution’s financial condition and risk profile when assigning ratings;
  • whether supervisory agencies should consider “evolving business practices” in determining additional evaluation factors;
  • whether compliance with laws and regulations should be considered within the composite and component ratings;
  • what threshold of specialty review findings should be included in the component and composite ratings, and to what extent they should influence the Management rating;
  • whether an institution’s composite rating should bear a close relationship with the component ratings, or should one component rating be able to drive the composite rating; and
  • whether the Management rating should reflect the institution’s overall financial condition and material financial risk.

Link to Statements on the Proposal Statements on the Proposal

Michelle W. Bowman, Vice Chair for Supervision of the Federal Reserve Board and Chair of the FFIEC, stated that “The revised CAMELS framework marks a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight.”

FDIC Chairman Travis Hill issued a statement of support, saying that under the Proposal, “a bank’s internal controls and risk management would remain relevant in the overall evaluation, but the primary focus of the ratings system would be on fundamental financial risks most pertinent to safety and soundness.”

Comptroller of the Currency Jonathan V. Gould issued a statement generally in support of the Proposal for seeking to “shift supervision away from process-heavy oversight toward a stronger focus on material financial risk,” but he noted certain concerns. Specifically, he raised the issue that the Management component may “double count” or overlap findings (i.e., reflect deficiencies already captured in other components), and that the Proposal does not sufficiently address this issue. He also emphasized balance, transparency, and fairness in the supervisory process, noting that “[a]bsent extenuating circumstances, no single component rating should disproportionately drive the composite rating.”

The Bank Policy Institute, a bank advocacy group, issued a statement in support of the Proposal and echoed Comptroller Gould’s concerns that more needs to be done to reform the Management component, as it “has had undue weight in determining bank ratings.”

Link to Conclusion Conclusion

If adopted, the Proposal would recalibrate the UFIRS framework to focus on material financial risk rather than policy, procedure, and documentation deficiencies or qualitative supervisory judgments. Financial institutions may face fewer adverse ratings based on non-material compliance or operational concerns, potentially freeing resources and supporting expansionary banking activities and “increased credit availability.”

Conversely, FFIEC acknowledged the Proposal’s risk of unintended consequences, including that financial institutions “may deprioritize certain risk management practices if those practices are not drivers of CAMELS ratings or perceived to be directly linked to material financial risk.” While a finalized rule may take public comments into account and seek to mitigate this risk, it will undoubtedly maintain the supervisory agencies’ preference for basing CAMELS ratings on material financial risks to safety and soundness, while deprioritizing or eliminating examination focus on process and reputation risk.