August 14, 2026
Federal Financial Institutions Examination Council (FFIEC)
l. William Seidman Center
3501 Fairfax Drive
Arlington, VA 22226-3550
Attn: Executive Secretary
Submitted through Regulations.gov
RE: FFIEC Docket ID OCC-2026-0562 Proposed revisions to the Uniform Financial Institutions Rating System (UFIRS), commonly referred to as the CAMELS rating system
The National Community Reinvestment Coalition (NCRC) appreciates the opportunity to comment on the FFIEC’s proposed revisions to UFIRS, commonly referred to as the CAMELS rating system.[1]
NCRC is a network of more than 700 community-based organizations dedicated to creating a nation that not only promises but delivers opportunities for all Americans to build wealth and attain a high quality of life. We work with community leaders and policymakers to advance solutions and build the will to solve America’s persistent racial and socio-economic wealth, income, and opportunity divides, and to make a Just Economy a national priority and a local reality.
The CAMELS ratings system contains ratings from 1 to 5 that indicate the management competency and safety and soundness of banks. The FFIEC is proposing to de-emphasize the management factor in favor of more quantifiable financial risks. While the more quantifiable factors possess the alure of greater objectivity, a de-emphasis on management factors will ultimately pose more risk to the banking system. If the proposal is adopted, banks may appear to be stellar to examiners if they observe sound capital reserves, asset quality, earnings, and liquidity. When examiners perform cursory exams of management practices, they are less likely to notice reckless and careless practices. If unchecked, these practices over time will erode capital, asset quality, earnings, and liquidity.
Moreover, the revised system is less likely to capture and reflect poor compliance with the Community Reinvestment Act (CRA), consumer protection, and fair lending laws and regulations in CAMELS ratings. Poor compliance with reinvestment obligations and consumer protection statutes reflects an unwillingness to serve all communities, particularly low- and moderate-income (LMI) communities, consistent with safety and soundness. A bank is not well managed if it is not adequately serving a sizable part of its community. A bank is not well managed if it is not abiding by consumer protection laws and is charging consumers excessive and deceptive fees.
Ultimately, if a bank offers its products in a deceptive or unfair way, it can be costly because of the potential of increases in loan delinquencies and defaults. The 2008 financial crisis illustrated clearly how poorly managed independent mortgage companies and some investment banks ignored risks and overexposed themselves and consumers with unaffordable loans that ended up in delinquency and default.[2] Better oversight of mainstream banks through safety and soundness exams partly prevented most banks from making these harmful loans that injured consumers, communities and the global economy. Poor compliance with consumer protection and fair lending laws will impact banks’ safety and soundness and must be reflected in CAMELS ratings in order to prevent wider harm to the economy.
De-emphasizing management competency is not fair to banks that are complying with their legal requirements or are exhibiting exemplary responsiveness to community needs. All else equal, a bank exhibiting poor compliance with reinvestment and consumer protection requirements should not receive the same CAMELS rating as one doing well meeting these requirements. The good or excellent performers will lose incentives to maintain their performance. The result will be less sustainable and affordable lending in communities.
Proposed Diminishment of the Management Factor Will Encourage the Rise of Riskier Banks as Illustrated by the Case of USAA Federal Savings Bank
The FFIEC’s proposal to remove “responsiveness to recommendations from auditors and supervisory authorities” and “demonstrated willingness to serve the legitimate banking needs of the community” from the criteria used to evaluate the management of banks will have negative consequences for all stakeholders: banks, regulators, and borrowers.[3] The FFIEC’s stated reasoning for removing these factors is to “focus on the most material aspects of risk management.”[4]
The proposed rule states that, “[a]n observation from industry is that the Management rating has been overweighted relative to other CAMELS components in determining the composite rating. The supervisory agencies’ analysis suggested that the Management component has been the most influential factor in determining composite ratings, particularly in recent years.”[5]
This statement hints that such an emphasis on management competency is not healthy and might pose regulatory constraints on banks’ lending and business activity. However, it is not supported by any evidence that banks scoring poorly on the management factor nevertheless score well on the other components such as asset quality or liquidity. Nor is the statement supported by discussion of any relationship between the CAMELS components and loan-to-deposit ratios or any other indicators of lending levels. Nor does the FFIEC refute that there is an intuitive relationship between bank management competency and the level of material risk.
The recent history of USAA Federal Savings Bank (USAA) shows how deprioritizing compliance can lead to significant financial risks. USAA had the dubious distinction of failing two consecutive CRA exams administered by the Office of the Comptroller of the Currency (OCC) with Needs-to-Improve ratings. Its March 2019 exam found USAA exhibited poor performance on the lending test, the most highly weighted component test of a CRA exam. It had a Low Satisfactory rating on the lending test, which is just a notch above the failing rating of Needs-to-Improve. The poor rating was driven by a poor distribution of consumer loans by geography (relatively few loans in (LMI census tracts) and merely adequate distribution of loans to LMI borrowers.[6] The OCC lowered the overall rating on USAA’s exam to Needs-to-Improve due to 546 violations of the Servicemembers Civil Relief Act including “wrongful repossessions of vehicles, and the filing of inaccurate affidavits in default judgment cases.”[7]
After USAA’s next exam in 2022, the OCC again lowered the bank’s rating from Satisfactory to Needs-to-Improve because of law violations that were more widespread than those reported in the 2019 exam. This time, the OCC identified 6,477 violations of the Federal Trade Commission Act’s prohibition against unfair and deceptive acts or practices, including failures to provide promised interest rate discounts on automobile loans.[8] USAA subsequently settled a class action in 2024 totaling $64 million for its failure to adhere to consumer protection laws.[9]
USAA’s compliance failures were not limited to consumer protection law. In 2024, after the 2022 failed CRA exam, the OCC filed a consent order against USAA for deficiencies in their compliance management regarding IT issues and money laundering prevention. Previous regulatory settlements did not prevent the 2024 malfeasance; USAA also entered into regulatory settlements in 2022 and 2019.[10]
USAA management failures were systemic and widespread. Former USAA CEO Wayne Peacock has acknowledged that USAA did “not sufficiently invest in the capabilities and expertise necessary to meet regulatory requirements.” His assessment was amplified by a senior official of the Treasury Department, Himamauli Das, the acting director of the Treasury Department’s Financial Crimes Enforcement Network. Das stated, “As its customer base and revenue grew in recent years, USAA…willfully failed to ensure that its compliance program kept pace, resulting in millions of dollars in suspicious transactions flowing through the U.S. financial system without appropriate reporting.” He continued that the bank received “ample notice and opportunity to remediate” its issues but failed to do so.[11]
USAA as of the summer of 2026 is the 31st largest bank in the United States with assets of more than $109 billion according to the FDIC.[12] A bank of this size, if its poor management practices remain uncorrected, poses a risk to the wider community in addition to itself and its customers. USAA failed two consecutive CRA exams, entered multiple consent orders, and settled a lawsuit. It caused significant consumer and community harm and failed to adequately protect against money laundering, potentially creating systemic risk in large part because of management’s failure to make sufficient investments in compliance.
The record demonstrates abject management failures in the case of USAA. If the agencies weaken the weight and depth of their management review in the CAMELS rating system, it risks encouraging more banks to relax its management practices, posing risks to themselves, consumers, and the economy.
Rigorous Management Reviews and CAMELS Unlikely to Lead to Less Lending as the CRA Experience Indicates
The proposed rule asserts that rigorous enforcement of regulatory requirements can lead to lower lending levels. It states that, “[r]esearch suggests that CAMELS ratings significantly affect lending behavior and bank performance, after attempting to control for some other factors, with downgraded banks exhibiting substantially lower loan growth.”[13] The assertion, however, is hedged and not definitive since it states that the research “attempted to control for some other factors.” Were the lower lending levels due to low CAMELS ratings or poor management and other factors that resulted in examiners giving low CAMELS ratings? It is likely that poor management, including inadequate marketing, loan underwriting, and monitoring loan performance, drove the lower lending levels.
The FFIEC cites a paper containing dated econometric analysis conducted a decade ago that does not make a convincing case that lower levels of lending for poorly rated banks are necessarily harmful. A question emerges about the independent variables that the analysis employs. The paper uses mostly internal bank health indicators such as liquidity levels and asset quality. It has some external economic controls including the housing price index, wage growth, unemployment rates, and credit card delinquency on a county level. But it neglects to consider housing cost burdens which could be a significant factor on borrowers’ abilities to acquire home loans or other types of loans.[14]
The other policy and management issue not considered by the paper is that banks with lower safety and soundness ratings should proceed cautiously with their lending activity until they make improvements in their management and fiscal condition. The FFIEC conducts safety and soundness exams once every twelve or eighteen months. This time period is reasonable, not unduly long, and adequate for banks to improve their soundness before resuming robust lending.
Rather than constrain lending, regulatory requirements may motivate banks to increase their lending to LMI borrowers. Using a Federal Reserve database of CRA exams from 2005 through 2017, NCRC found that banks rated Outstanding on the Lending Test made a median of 12 percent of their home loans to LMI borrowers. Those rated Needs-to-Improve made a median of 2 percent to LMI borrowers. Banks scoring High and Low Satisfactory on the Lending Test likewise made a much higher percentage of loans to LMI borrowers than the banks rated Needs-to-Improve. The great majority of banks (about 98 percent) pass their CRA exams and similar percentages pass the lending test of CRA exams. Only about 5 percent of the banks (420 out of 7,377 in the Federal Reserve longitudinal sample) received a Needs-to-Improve on the lending test of CRA exams.[15]
This analysis begs the question: Did the lower CRA ratings cause a decline in lending? Or was it overall management difficulties that caused the low percentage of lending to LMI borrowers and failed ratings on the lending test? Since the great majority of banks passed their lending test, it is unlikely that overly rigorous CRA exams caused declining percentages of lending to LMI borrowers. It is more likely that the ratings accurately captured the minority of banks that had more difficulties managing their lending overall and/or lending to LMI borrowers. Also, it is likely that CRA motivated most banks to make efforts to lend to LMI borrowers and increase their percentages of loans to LMI borrowers.
Banks with failed CRA ratings do not necessarily have low levels of lending. Instead, there are cases in which banks are failing to serve LMI borrowers and census tracts. Small bank CRA exam findings can illuminate issues with lending levels and distribution because examiners rate small banks almost entirely based on retail lending performance. For example, Merchants and Manufacturers Bank, a small bank located in Joliet, Illinois failed its 2020 CRA exam not because of a low level of lending as reflected in a low loan-to-deposit ratio. Instead, it failed its exam because it issued a low percentage of loans in LMI census tracts and to LMI borrowers.[16]
In another case involving a small bank, American Community Bank of Indiana failed its CRA exam in 2022 due not to a low loan-to-deposit ratio but because of low percentages of loans to LMI borrowers and census tracts.[17] On its 2024 exam, it maintained a reasonable loan-to-deposit ratio and increased its percentage of loans to LMI borrowers and census tracts.[18]
Diminishing the Management Factor Breaks with Decades of CAMELS Development and Would Not Constrain Increased Risk to the Financial System
When the agencies were updating the CAMELS rating system in July 1996, they observed that risk had increased in the financial industry and that the management factor needed to be elevated in importance. The agencies stated:
Changes in the financial services industry, however, have broadened the range of financial products offered by institutions and accelerated the pace of transactions. These trends reinforce the importance of institutions having sound risk management processes. Accordingly, the revised rating system would contain language in each of the components emphasizing the consideration of processes of identify, measure, monitor, and control risks.[19]
In December 1996, when the FFIEC finalized its proposed changes, it noted that:
The ability of management to respond to changing circumstances and to address the risks that may arise from changing business conditions, or the initiation of new activities or products, is an important factor in evaluating a financial institution’s overall risk profile and the level of supervisory attention warranted. For this reason, the management component is given special consideration when assigning a composite rating.[20]
The spate of bank failures in the spring of 2023, the rapid pace of change, and the emergence of potential systemic risks related to the opening of the banking system to new entrants, such as stablecoin issuers, and new activities suggest that federal bank agencies must proceed cautiously in changing their bank management expectations. The FFIEC recognized the importance of examining management in 1996 due to significant and rapid changes in the financial industry. The same caution is warranted today.
For example, in a span of a few weeks during 2023, three bank failures, Silicon Valley Bank, Signature Bank, and First Republic Bank, were among the largest bank failures in United States history and shocked confidence in the banking sector.[21] These banks were poorly managed, experienced rapid increases in assets and customers, accumulated large dollar amounts of uninsured deposits, and financed start-ups and other risky endeavors without prudent controls. In another case of a bank failing in 2023 due to excessive risk taking, Silvergate was a major enabler of cryptocurrency and had established an exchange and payments system fueling the growth of cryptocurrency.[22]
The relatively recent spate of bank failures is not the only consideration suggesting caution is necessary. Overall economic conditions, including increases in job layoffs, sluggish wage growth and persistent inflation, should motivate regulatory agencies to increase their oversight of management operations and practice.[23] As the economy stagnates, newspaper accounts indicate an increased exposure to fraudulent activity. Banks have taken losses after financing non-bank automobile lenders serving customers with subprime credit. Other banks have suffered fraud from commercial real estate firms.[24]
Because of economic conditions and the increase of risky bank practices, NCRC agrees with the sentiments of David L. Herndon, Bank Commissioner with Office of the State Bank Commissioner of Kansas:
I respectfully request that the FFIEC reconsider its deemphasis on the management qualitative factors. Strong board oversight, proper controls, and qualified key management is the best source of strength for a bank to weather weak economic conditions and to recover from an unsafe and unsound condition.
I strongly believe it (the management factor) is the most important factor of the CAMELS rating to ensure the safety and soundness of a bank and should continue to be heavily emphasized in safety and soundness examinations. I specifically disagree with removing the review of management succession, the willingness of the board to address monitor auditor or examiner recommendations and not discussing specialty reviews while reviewing management.[25]
Banks of all sizes, whether complex international and national banks or smaller rural based banks, need robust oversight of their management practices and policies. The proposal’s removal of language directing examiners to devote special consideration of the management factor will deemphasize management competence and capability at precisely the wrong time given all the new entrants to the banking system engaging in newly regulated activities during uncertain economic times.
Conclusion
The FFIEC’s proposed rule is based on faulty premises related to supposed negative consequences of rigorous reviews of management practices. The proposal upends decades of safety and soundness test methodology and practice. The quality of management critically impacts whether banks serve community needs in a non-discriminatory and safe and sound manner. More rigor, not less, in these reviews are needed.
Thank you for considering our views on this important matter. If you have any questions, please contact Josh Silver, Senior Fellow and author of this letter at endredline77@gmail.com or me at jvantol@ncrc.org.
Sincerely,
Jesse Van Tol
President and CEO
National Community Reinvestment Coalition
[1] 91 Fed. Reg. 29128 (proposed May 19, 2026).
[2] National Commission on the Causes of the Financial and Economic Crisis in the United Sates, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (New York: Public Affairs, 2011), xvii-xxiv, 7, 70, 75, 79.
[3] Federal Financial Institutions Examination Council, Uniform Financial Institutions Rating System, Notice and Request for Comment, Federal Register, Vol. 91, No. 96, Tuesday, May 19, 2026, pg. 29130. https://www.govinfo.gov/content/pkg/FR-2026-05-19/pdf/2026-09944.pdf
[4] Ibid.
[5] Ibid.
[6] OCC CRA performance evaluation of USAA Federal Savings Bank, March 18, 2019, pp. 7-8, https://occ.gov/static/cra/craeval/Sep20/707975.pdf
[7] CRA evaluation, 2019, p. 5
[8] OCC CRA performance evaluation of USA Federal Savings Bank, March 21, 2022, p. 6, https://occ.gov/static/cra/craeval/Oct22/707975.pdf
[9] Polo Rocha, USAA agrees to $64M settlement in class action overcharging case, American Banker, August 06, 2024, https://www.americanbanker.com/news/usaa-agrees-to-64m-settlement-in-class-action-overcharging-case
[10] OCC Issues Comprehensive Cease and Desist Order Against USAA Federal Savings Bank, News Release 2024-137, December 18, 2024, https://www.occ.gov/news-issuances/news-releases/2024/nr-occ-2024-137.html
[11] Polo Rocha and Sanford Nowlin, Fundamental breakdown: How USAA landed in regulators’ hot seat, American Banker, November 21, 2024, https://www.americanbanker.com/news/fundamental-breakdown-how-usaa-landed-in-regulators-hot-seat
[12] FDIC, BankFind Suite, https://banks.data.fdic.gov/bankfind-suite
[13] FFIEC, Proposed Rule, May 2026, p. 29133.
[14] Paul Kupiec, Yan Lee, and Claire Rosenfeld, Does Bank Supervision Impact Bank Loan Growth?, November 2016, https://www.aei.org/wp-content/uploads/2016/12/Kupiec-Does-bank-supervision-impact-bank-loan-growth.pdf, pp. 42-43
[15] Josh Silver and Jason Richardson, Do CRA Ratings Reflect Differences In Performance: An Examination Using Federal Reserve Data (Washington, D.C., NCRC, May 2020) https://ncrc.org/do-cra-ratings-reflect-differences-in-performance-an-examination-using-federal-reserve-data/
[16] FDIC CRA Performance Evaluation of Merchants and Manufacturers Bank, January 2020, https://crapes.fdic.gov/publish/2020/20040_200127.PDF
[17] FDIC, CRA Performance Evaluation of American Community Bank of Indiana, June 10, 2022, https://crapes.fdic.gov/publish/2022/29878_220610.PDF
[18]FDIC, CRA Performance Evaluation of American Community Bank of Indiana, October 21, 2024, https://crapes.fdic.gov/publish/2024/29878_241021.PDF
[19] Federal Financial Institutions Examination Council, Proposed Rule and Request for Comment, Uniform Financial Institutions Rating System, Federal Register, Vol. 61, No. 139, Thursday, July 18, 1996, https://www.govinfo.gov/content/pkg/FR-1996-07-18/pdf/FR-1996-07-18.pdf, p. 37474
[20] Federal Financial Institutions Examination Council, Uniform Financial Institutions Rating System Federal Register, Vol. 61, No. 245, Thursday, December 19, 1996, p. 67025, https://www.govinfo.gov/content/pkg/FR-1996-12-19/pdf/96-32174.pdf
[21] Mishkin, F. S., & White, E. N. (2024). The failure of Silicon Valley Bank and the panic of 2023. Journal of Economic Perspectives, 38(1), 133–152. American Economic Association.
[22] Kate Rooney and Evelyn Cheng, CNBC, Meet the small community lender that’s become the go-to banker of the cryptocurrency world, May 31, 2018, https://www.cnbc.com/2018/05/31/meet-silvergates-alan-lane-whos-bankrolling-cryptocurrency-exchanges.html and MacKenzie Sigalos, Crypto-focused bank Silvergate is shutting operations and liquidating after market meltdown, Mar 8 2023, CNBC, https://www.cnbc.com/2018/05/31/meet-silvergates-alan-lane-whos-bankrolling-cryptocurrency-exchanges.html
[23] Lauren Kaori Gurley, Hiring slumped unexpectedly in July, as the economy shed 23,000 jobs, August 7, 2026, Washington Post, https://www.washingtonpost.com/business/2026/08/07/economy-shed-23000-jobs-july-labor-market-weakened/
[24] Aaron Gregg, Rise of ‘shadow banking’ brings new financial risks, experts say, October 18, 2025, Washington Post, https://www.washingtonpost.com/business/2025/10/18/first-brands-tricolor-shadow-banking-risk/
[25] Comment of David Herndon, https://www.regulations.gov/comment/OCC-2026-0562-0025
