FFIEC Agencies Propose Revisions to CAMELS Ratings

By: Travis Nelson, Shareholder, Financial Institutions Regulatory, Litigation, and Enforcement at Polsinelli

On May 19, 2026, the prudential banking regulators, through the Federal Financial Institutions Examination Council ("FFIEC"), invited public comment on proposed revisions to the Uniform Financial Institutions Rating System, commonly known as the CAMELS rating system, to focus ratings on material financial risk and improve the transparency of ratings. "CAMELS" is an acronym for Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk. Financial institutions receive component ratings that measure their performance in each CAMELS category, as well as composite ratings that reflect their performance across all categories. An institution's CAMELS ratings, which are determined by the institution's regulatory examiners, can have broad and significant effects, such as growth and expansion restrictions, regulatory capital and dividend requirements, escalated supervisory actions, increased operating costs, and funding and liquidity penalties. CAMELS are also probably the most guarded of all confidential supervisory information or "CSI," meaning that under only the rarest of circumstances may CAMELS ratings be shared with anyone outside of the institution, and even then, only with the prior written approval of the institution's prudential regulator.

The agencies are proposing to retain the basic framework of the existing rating system, with certain modifications to the composite and component rating definitions and evaluation factors. Specifically, the proposed revisions would emphasize factors that materially affect an institution's financial condition and risk profile. According to the agencies, the proposal would emphasize consideration of material financial risks over concerns related to policies, procedures, and documentation, thus helping to ensure that ratings accurately reflect the issues most likely to impact safety and soundness. The agencies also note that the proposed changes would improve transparency by more clearly articulating expectations for financial institutions. These updates would improve the effectiveness of the Uniform Financial Institutions Rating System as a supervisory tool and increase the public's confidence in supervisors' assessment of the banking system. Additionally, certain of the proposed changes would also be responsive to comments received from the Economic Growth and Regulatory Paperwork Reduction Act public notices and public outreach meetings. Federal Reserve Vice Chair for Supervision Michelle Bowman, who ‌chairs ⁠the FFIEC, said in a statement that the proposed changes mark "a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight."

One of the most controversial aspects of the current CAMELS rating system is the Management rating. The Management rating is highly subjective, and many believe poses some risk of incorporating examiner bias. The challenges posed by the current Management rating category was echoed in a statement released by Comptroller Gould himself the same day that the interagency proposal was issued: "While I support the direction of this proposal, I remain concerned that the revisions do not sufficiently address "double counting" within the Management, or M, component. For the CAMELS framework to function effectively, each component must provide distinct, incremental value. Historically, the Management rating has reflected deficiencies already captured in other components. To maintain the integrity and transparency of the CAMELS system, it is vital that the Management rating serve as a standalone assessment rather than a secondary reflection of other components."

Financial institutions have until August 17, 2026, to comment on the proposed changes. Institutions may provide comments on the proposal generally, or on specific items, and may submit such comments "on-the-record," meaning that they submit the comments on behalf of the particular institution, or through a trade association, such as a state bankers association, or the American Bankers Association, or they can submit them anonymously through outside counsel, such as Polsinelli, P.C.