Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—Agencies, industry groups welcome FFIEC proposal to update CAMELS system, (May 20, 2026)

By Nora Macaluso

The American Bankers Association and Bank Policy Institute said they are looking forward to reviewing the proposed changes to the composite rating system for banks.

A proposal to update the composite rating system used to measure a bank’s financial condition and risk profile is “an important step” in the Federal Deposit Insurance Corporation’s “ongoing efforts to reform bank supervision,” said FDIC Chairman Travis Hill.

The Federal Financial Institutions Examination Council (FFIEC) is taking comments on proposed changes to the Uniform Financial Institutions Rating System (UFIRS), commonly referred to as the CAMELS rating system (see Banking and Finance Law Daily, May 18, 2026). The goal is to focus on issues that pose material risks that would undermine an institution’s safety and soundness.

The FFIEC said the changes will be risk-focused, provide clarity on terminology and definitions of risks, provide a more balanced weighting of all CAMELS components, set clear expectations for financial institutions, and help to strengthen the link between supervisory ratings and safety and soundness.

“The CAMELS framework has not been modified since 1996, while the banking industry has undergone significant changes,” Hill said. The proposal, he said, shifts emphasis “away from a bank’s process for managing risks and towards factors and risks that materially impact a bank’s financial condition.”

“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” and focusing on “the areas most impactful to an institution’s financial condition,” Hill said.

National Credit Union Administration Chairman Kyle Hauptman, a member of the FFIEC, encouraged credit unions to provide feedback on the proposal, which he said “aligns with many of NCUA’s other efforts to integrate risk-based supervision principles into the examination program.” The proposal aims to “improve transparency by clarifying how ratings are assessed and to provide institutions with a more predictable and risk-focused evaluation process,” Hauptman said. “The revisions emphasize the factors that materially affect an institution’s financial condition and risk profile over concerns with documentation, policies, or procedural matters when those issues do not pose a meaningful risk to safety and soundness.”

Comptroller of the Currency Jonathan V. Gould said the proposed changes “shift supervision away from process-heavy oversight toward a stronger focus on material financial risk.” But Gould said he’s “concerned that the revisions do not sufficiently address ‘double counting’” in the management component, the M in CAMELS. (The rating system evaluates banks on Capital adequacy, Asset management, Management, Earnings, Liquidity, and Sensitivity to market risk.)

“Historically, the Management rating has reflected deficiencies already captured in other components,” said Gould, who noted he supports the “direction of the proposal.”

“Absent extenuating circumstances, no single component rating should disproportionately drive the composite rating,” Gould said. “A bank’s overall health is the sum of its parts, and the composite rating should be a transparent evaluation of all the factors rather than being driven by a single component.”

Industry reaction. The Bank Policy Institute (BPI) has expressed concern about the M component, saying it has had outsize influence on a bank’s rating. BPI President and CEO Greg Baer said the FFIEC proposal recognizes that. “We welcome the direction of these changes and look forward to commenting on the proposal,” Baer said. “.As the proposal acknowledges, the Management component has had undue weight in determining bank ratings. Improving supervision requires reforming the ‘M.’”

The American Bankers Association (ABA) said it too welcomed the proposal. “As we have shared previously, there are opportunities to make thoughtful improvements to the CAMELS framework that prioritize safety and soundness without imposing unnecessary compliance burdens that take banks' time and resources away from serving their customers and communities,” said ABA President and CEO Rob Nichols. “We look forward to reviewing the proposal with members and sharing our perspective during the comment process."

Companies: American Bankers Association; Bank Policy Institute

RegulatoryActivity: BankingOperations FinancialStability GCNNews