The Federal Financial Institutions Examination Council (FFIEC) has proposed the most significant overhaul of the Uniform Financial Institutions Rating System, also known as the CAMELS ratings, in nearly 30 years. The revisions aim to strengthen the link between the CAMELS ratings and an institution’s safety and soundness by focusing on material financial risks.
In addition, the updates are intended to rebalance the influence of certain component ratings and increase transparency around supervisory expectations. The revisions are a fundamental recalibration of CAMELS that will reshape how the banking agencies evaluate safety and soundness moving forward.
This overhaul matters because it:
- Raises the bar for examiners to downgrade the Management component, by requiring linkage of perceived deficiencies to significant financial risks;
- Limits the impact of specialty examination findings on CAMELS unless financially material or significant non-compliance with laws or regulations is identified; and
- Reduces examiner discretion in assigning ratings and increases transparency in ratings outcomes.
Proposed Changes To Know
Remove “Special Consideration” Given to the Management Rating in the Composite Rating
At the core of the proposal is a shift in how the component and composite ratings would be determined. The agencies found that the Management rating has been the single most influential driver of composite outcomes in recent years, and the proposal is designed to correct that.
The current CAMELS framework provides that the Management component is given “special consideration” when assigning the composite rating. The proposal would remove this “special consideration,” and instead, examiners would be directed to weigh all components more evenly, with an expectation that ratings reflect conditions that materially affect an institution’s safety and soundness. A Management downgrade to 3 or worse would generally require evidence of risk management practices that produce material financial risk, not merely procedural gaps.
Changes to the Management Component Rating
The FFIEC proposes narrowing the evaluation factors and definitions used to determine the Management component rating. The revisions seek to update evaluation factors to focus on the most material aspects of risk management. As such, the proposal would remove factors under the current framework 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,” to eliminate considerations that do not directly affect safety and soundness.
Material Financial Risk Threshold
The proposal introduces a material financial risk threshold for assigning a Management rating of 3 or worse. Institutions would generally receive such ratings only when weaknesses result in material financial risk to the institution or when reporting is unreliable, assets are not adequately safeguarded, or significant noncompliance with laws and regulations exists.
Treatment of Specialty Review Findings
Specialty exam findings face a higher bar. The FFIEC clarifies that specialty review findings should influence CAMELS ratings, specifically the Management component, only when they affect financial condition, represent material financial risks, or reflect significant noncompliance with laws or regulations. Process findings alone would have a constrained path into component ratings. This change is intended to prevent downgrades based on findings that do not materially affect an institution’s safety and soundness.
Revisions to Composite Rating Definitions
The proposal would make changes to composite rating definitions to provide clearer thresholds and align with the broader approach of linking the rating system to an institution’s financial condition and risk profile, with emphasis on material financial risks.1 Specifically, the proposal would revise the composite ratings as follows:
- Composite 1 & 2: Strong or satisfactory financial performance, respectively, with only minor or moderate risk management weakness.
- Composite 3: Less than satisfactory financial performance or inadequate risk management practices that result in material financial risk to the institution. May also reflect significant noncompliance with laws and regulations.
- Composite 4: Deficient financial performance that risk management weaknesses alone would not support this rating absent observable financial deterioration or material financial risk.
- Composite 5: Critically deficient financial performance.
By establishing clearer thresholds for these ratings, the proposal would help ensure that ratings of 3 or worse are more fully supported by evidence of weaknesses that materially impact the safety and soundness of the institution.
Clarifying Language on Risk Management
The proposal would replace broad, generic risk management language across the CAMELS components with more specific, measurable evaluation factors tailored to each area. For example, liquidity assessments would focus on the effectiveness of funds management practices, while capital adequacy would emphasize maintaining capital levels in alignment with risk and strategic planning through varying conditions.
By increasing specificity, the FFIEC aims to ensure the CAMELS ratings accurately reflect the risk management practices that materially impact financial condition and provide more transparency into supervisory expectations.
Clarifying Evaluation Factors
The proposal would remove the “but not limited to” language from the component descriptions, eliminating unbounded examiner discretion, and allowing additional evaluation factors only when they are critical to assessing an institution’s financial condition or risk profile. In these cases, examiners would be required to document the rationale for using such factors, increasing transparency and predictability.
The FFIEC also proposed clarifying and refining component-specific evaluation factors, including contingent liabilities in capital adequacy, funding costs and commodity price exposure in earnings, and assessments of net interest income sensitivity under Sensitivity to Market Risk. These changes aim to improve transparency, standardize evaluations, and ensure focus remains on material financial risks.
Improving Consistency, Structure, & Approach to Ratings Definitions
The proposal would standardize CAMELS component rating definitions by introducing consistent terminology and a clearer structure focused on financial condition and risk management. Terms like “strong,” “satisfactory,” “less than satisfactory,” “deficient,” and “critically deficient” would describe financial condition, while “effective,” “adequate,” “inadequate,” and “deficient” would describe risk management practices. The changes aim to create clearer and more consistent thresholds for deterioration in condition or practices and give institutions more insight into what drives ratings.
Modernizing & Conforming Framework Language
The FFIEC proposes modernizing and standardizing terminology throughout the ratings framework to reflect current industry and accounting practices. Reference to “allowances for loan and lease losses” would be replaced with “allowances for credit losses” to align with the CECL treatment, and all references to reputation risk would be removed.
Closing Thoughts
Public comments are requested by August 17, 2026.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars and let us be a resource for your institution.
- 1 “Uniform Financial Institutions Rating System,” regulations.gov, May 19, 2026.