FFIEC Proposes Revisions to CAMELS Rating System: Key Takeaways

On May 19, 2026, the Federal Financial Institutions Examination Council (FFIEC) to update the Uniform Financial Institutions Rating System (UFIRS), commonly known as the “CAMELS” supervisory rating system that regulators use to evaluate financial institutions. This proposal aims to modernize the CAMELS ratings criteria to focus on factors that significantly affect a financial institution’s risk profile and financial condition and ensure consistent, risk-focused supervision across institutions. As the proposal notes, “the supervisory agencies endeavor to ensure that all financial institutions are evaluated in a comprehensive and uniform manner, and that supervisory attention is appropriately focused on the financial institutions exhibiting material financial weaknesses or risks.” Comments on the proposal are due by August 17, 2026.

Background: The CAMELS Rating System and Why It Matters

CAMELS—which stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk—is the standard 1-to-5 rating scale that regulators use to assess a financial institution’s condition. Originally adopted in 1979 and last revised in 1996, the CAMELS system aims to ensure uniform evaluations of all banks’ safety and soundness. Under UFIRS, examiners assign a Composite rating (1 = strongest, 5 = weakest) based on these six components, each of which also gets a 1–5 score. This composite CAMELS rating is a confidential supervisory summary that influences a bank’s ability to engage in strategic transactions, examination cycle, enforcement actions, expediency of application review and overall regulatory scrutiny.

Why an update now? In the 30 years since the last CAMELS revision, the banking industry’s risk profile has changed dramatically. The FFIEC’s proposal acknowledges that new risks (e.g., cybersecurity, fintech exposures, complex market dynamics) and lessons from past crises necessitate a refresh of UFIRS to keep supervision effective and aligned across agencies. The 2023 banking sector stressors, such as sudden liquidity and interest-rate risk events, underscored the need for an updated framework that ensures consistent focus on emerging risk management issues. The proposal’s overarching goal is to emphasize consideration of material financial risks (as opposed to concerns relating to documentation, procedures and policies) and improve clarity and consistency in how examiners apply CAMELS criteria, thereby giving bank boards and management a better roadmap to understand and meet supervisory expectations in the current environment.

Key Proposed Changes to UFIRS (CAMELS) and Their Impact

1. Refined Component Definitions: The FFIEC proposes to update the descriptions of each CAMELS component rating to incorporate current risk factors and regulatory priorities. For example, capital adequacy component criteria would explicitly reference modern stress-testing and capital planning practices. Asset quality  component standards would address evolving credit portfolio risks (such as concentrations and new asset types). The earnings component may be refined to capture sustainable performance and careful risk pricing. Liquidity standards would reflect today’s market liquidity challenges, including funding stability and contingency planning. Sensitivity to market risk would explicitly consider interest rate risk and may be expanded to cover more broadly related drivers of volatility. Taken together, these refinements aim to tie CAMELS more closely to measurable risk management practices in areas like credit risk, operational resilience and market risk management.

2. Removal of “Special Consideration” Given to the Management Rating: The proposal would remove a specific sentence in the current UFIRS framework which directed bank examiners to give “special consideration” to the management component in the composite rating. By removing this sentence, the proposal would help ensure that examiners engage in a balanced approach across all the component ratings and not overweight the management component in assigning a composite rating. In addition, other evaluation factors used to assign the management rating (for example, management depth and succession and willingness to serve the needs of the banking community) would be removed in order to focus the rating more closely on objective risk management criteria relating to safety and soundness.

3. Integration with Other Rating Systems: The proposal recognizes that banks are also subject to separate interagency rating frameworks for IT, consumer compliance and trust (as applicable). The FFIEC seeks to harmonize UFIRS with these systems by reducing redundancy and potential conflicts, and, in particular, to clarify that separate findings in other exams would only influence the CAMELS composite and component ratings if those findings represent material financial risks, reflect significant noncompliance with law and regulation, or impact a financial institution’s overall financial condition.

4. Emphasis on Forward-Looking Supervision: The updated UFIRS also stresses a forward-looking approach. This means that beyond evaluating current financial condition, examiners will place greater weight on the bank’s ability to identify and plan for emerging risks. In practice, bank officers should expect examiners to delve into stress testing results, strategic risk management, and the robustness of internal controls, especially under the management and liquidity components. The aim is to encourage banks to proactively manage risks before they manifest in deterioration of financial condition and losses.

5. Removing Obsolete or Subjective Factors: The proposal suggests eliminating outdated evaluation factors and clarifying more subjective elements to make ratings more objective and tied to the most material aspects of risk management. Notably, this is in line with the OCC’s recent stance to drop “reputation risk” as an explicit part of supervisory examinations. Instead, reputational concerns would be considered through concrete risk factors (e.g., compliance, operational incidents) rather than as a stand-alone element. By streamlining and clarifying criteria, the new UFIRS should yield more consistent ratings across agencies and exam teams, reducing unpredictability for banks. With respect to the management component, the proposal would remove factors such as “responsiveness to recommendations from auditors and supervisory authorities” and others identified above to focus more closely on safety and soundness.

6. No New Rating Components (for Now): Importantly, the FFIEC did not propose adding new rating categories (so CAMELS remains six components)—an outcome many banks will welcome given speculation of adding cybersecurity or fintech-specific ratings. Instead, the agencies propose weaving such considerations into existing CAMELS components (for example, cyber risk management could fall under Operational controls within the management component, and third-party fintech partnerships might be evaluated under multiple CAMELS areas depending on their nature). The proposed approach thus emphasizes integration over expansion, aiming to capture new risk dimensions within the well-known CAMELS framework rather than complicating it.

7. Revisions to Composite Rating Definitions: Finally, the FFIEC proposal endeavors to align the definitions for each composite rating more closely with material financial risk, helping ensure that an institution rated three or below exhibits weaknesses that materially impact its safety and soundness. For example, the definition for composite one and two would clarify that institutions receiving this rating should have strong or satisfactory financial performance, with only minor or moderate risk management weaknesses. Comparatively, a composite three grade would be assigned to an institution “which exhibits less than satisfactory financial performance or inadequate risk management practices that result in material financial risk to the institution.” 

8. Operational and Strategic Implications: If implemented, these changes would directly influence how examiners assess a bank. Bank personnel—especially CEOs, CFOs, CROs, and board audit/risk committee members—should review the proposed updated component descriptions and rating factors and assess their own institutions’ readiness. For instance, does your bank’s risk governance framework cover all the areas now emphasized under management? Are capital and liquidity stress scenarios integrated into routine planning, as will likely be expected under capital and liquidity components? By aligning your bank’s practices to the revised criteria ahead of time, you can not only strengthen regulatory compliance but also benefit from a more resilient operational posture focused on material financial risk.

Chairman Gould’s Perspective: Aligning Supervision With Modern Banking

The OCC, one of the FFIEC member agencies, has voiced some support for the UFIRS update in a concurrent statement. OCC Comptroller Jonathan Gould stated that he appreciated how the proposed revisions move supervision towards material financial risk and away from process-heavy oversight. Notwithstanding his appreciation, however, Chairman Gould cautioned that he believes the current revisions do not do enough to address “double counting” within the management component, and that the management component be a standalone assessment rather than an alternative reflection of other components. The ultimate final rule may directly address Comptroller Gould’s concerns if market participants agree that the management component is not truly independent from the other composite rating components.

Preparing for the Revised CAMELS: Action Items for Bank Officers

Given the likely adoption of these changes (after a comment process), bank management should consider proactive steps now:

• Review Proposed Criteria: Carefully study the revised component definitions and sub-factors once finalized. Assess gaps between your current practices and the new expectations, in particular with regards to material financial risk. For example, if liquidity management now includes a stronger focus on intraday liquidity or diversified funding, ensure your policies reflect that.
• Enhance Risk Governance: The emphasis on management’s effectiveness and internal controls means board oversight and risk committees will bear more scrutiny. Strengthen your bank’s risk governance structure—e.g., clear risk appetite statements, active board engagement, and comprehensive risk reporting with a strong focus on material financial risk and overall preservation of the safety and soundness of an institution.
• Prioritize Risk Management Training: Ensure that senior officers and relevant managers understand the CAMELS changes and how their area influences the bank’s ratings. Training and internal communications can align everyone with the updated supervisory focus, reinforcing a culture of risk awareness.
• Leverage Forward-Looking Tools: Use stress tests, scenario analyses, and risk dashboards to generate forward-looking insights on capital and liquidity adequacy, asset quality trends, etc. This proactivity aligns with the regulators’ push to look ahead, not just backward, in evaluations.
• Engage with Regulators: During and after the comment period, maintain open dialogue with your examiners about the forthcoming changes. Understanding their expectations and demonstrating your bank’s commitment to aligning with them can foster a collaborative exam environment even before the new UFIRS formally takes effect.

In sum, the FFIEC’s proposed modernization of the CAMELS rating system is an important development for bank supervision, one that shifts the focus squarely onto uniform financial risk.  

The FFIEC is represented by the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Consumer Financial Protection Bureau.