US Regulators Propose CAMELS Rating Overhaul

Earlier this week, US regulators proposed reforms to the confidential CAMELS rating system, aiming to refocus it on material financial risk and to improve transparency.

The proposal was put forward by the Federal Financial Institutions Examination Council (FFIEC), which sets standard examination practices across bank and credit union regulators. “The revised CAMELS framework marks a decisive shift toward transparency, quantitative factors, and predictability of supervisory oversight,” said Federal Reserve Vice Chair for Supervision Michelle Bowman, who serves as Chair of the FFIEC.

Under the CAMELS ratings system, supervisors assign each institution a composite score and rate six components: Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. The FFIEC proposes to remove language directing examiners to give the Management component “special consideration” when assigning the composite rating. It also places limits on the evaluation factors that contribute to the Management rating to the most material aspects of risk management. “An observation from industry is that the Management rating has been overweighted relative to other CAMELS components in determining the composite rating,” the FFIEC writes in the proposal.

The proposal also addresses how findings from specialty reviews — such as compliance, BSA/AML, and information systems examinations — feed into CAMELS ratings. Currently, such findings can contribute to rating downgrades even when they do not reflect material financial risks, the FFIEC explains. The proposal would limit their influence to cases where findings from those reviews impact an institution's overall financial condition, represent material financial risk, or reflect significant noncompliance with laws and regulations.

In addition, the proposal introduces clearer thresholds for composite ratings of 3 or worse, requiring evidence of weaknesses that materially impact safety and soundness. Ratings of 4 and 5 would be reserved for institutions exhibiting deficient or critically deficient financial performance, with risk management weaknesses alone insufficient to support such ratings absent observable deterioration in financial condition. All references to reputation risk would also be removed from the framework.

Comments on the proposal are due by August 17, 2026.