On May 19, the FFIEC issued a notice and request for comment on proposed revisions to the “Uniform Financial Institutions Rating System,” commonly referred to as the CAMELS rating system. According to the FFIEC, the proposal would strengthen the link between CAMELS ratings and a financial institution’s safety and soundness by emphasizing “material financial risks” over concerns related to policies, procedures and documentation, and by improving the transparency of ratings.

Key proposed changes include: (i) removing the “special consideration” currently given to the “Management” component when determining composite ratings; (ii) establishing a material financial risk threshold for assigning Management ratings of 3 or worse; and (iii) limiting the influence of specialty review findings on CAMELS ratings to those that impact an institution’s overall financial condition or pose material financial risk. The proposal would also remove references to “reputation risk” from the framework and replace references to “allowances for loan and lease losses” with “allowances for credit losses” to conform with current accounting standards under GAAP.

The proposed revisions also aim to introduce more consistent terminology across rating definitions, using terms such as “strong,” “satisfactory,” “less than satisfactory,” “deficient,” and “critically deficient” to describe an institution’s financial condition, and would remove the “but not limited to” language from component evaluation factors, instead requiring examiners to document and explain any additional factors considered beyond those listed. The FFIEC stated that its analysis of ratings data from 2000 to 2025 found that the Management component has disproportionately influenced composite rating determinations, especially in recent years, and that the proposed changes are intended to ensure supervisors adopt a more balanced approach that “appropriately considers” all component ratings. The FFIEC said the proposal would also clarify evaluation factors for several components, including adding explicit consideration of net interest income performance and interest rate volatility exposure within the “Sensitivity to Market Risk” component. Comments on the proposal are due by August 17.