US banking regulators shift focus to material financial risks

Major US banking regulators, including the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency, are shifting their supervisory models to focus primarily on material financial risks. This pivot moves away from enforcement actions based on procedural issues or reputational concerns.

The Federal Financial Institutions Examination Council (FFIEC) has proposed rulemaking to revise the Uniform Financial Institutions Rating System, known as the CAMELS rating system, for the first time in thirty years. The goal is to ensure the system emphasizes an institution’s financial condition and material risk profile.

Data indicates a significant decline in enforcement actions; public actions across the three primary agencies dropped from over 500 in 2015 to 245 by 2025. At the Federal Reserve, enforcement actions have decreased by approximately 48% to 58% in recent periods. This new framework includes an “abnormal probability of abnormal harm” standard for unsafe practices and has formally eliminated reputational risk from the supervisory playbook, a move noted for its potential impact on the crypto-adjacent banking sector.