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Nutter Bank Report: May 2026
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- Federal Banking Regulators Propose Changes to CAMELS Rating System
- Federal Reserve Issues Proposal for New Type of Reserve Bank Payment Account
- FDIC Proposes Rule to Implement BSA/AML Compliance for Payment Stablecoin Issuers
- OCC Clarifies Federal Preemption of State Interest-on-Escrow Laws
- Other Developments: FDIC Official Signs and Equal Credit
1. Federal Banking Regulators Propose Changes to CAMELS Rating System
The FFIEC has requested public input on proposed revisions to the uniform financial institutions rating system, commonly known as the CAMELS rating system, that are intended to focus on material financial risk and improve the transparency of ratings. The proposed revisions released on May 19 would retain the basic framework of the existing rating system while modifying certain composite and component rating definitions and evaluation factors. According to the FFIEC, the proposed revisions would emphasize factors that materially affect an institution's financial condition and risk profile. For example, the proposed revisions would remove from the Management component of the CAMELS rating system evaluation factors related to “Management depth and succession,” “Responsiveness to recommendations from auditors and supervisory authorities,” and “Demonstrated willingness to serve the legitimate banking needs of the community,” to “focus on the most material aspects of risk management.” The proposed revisions also would change the Management component rating definitions to include a material financial risk threshold for assigning Management ratings of 3 or worse based on risk management weaknesses. Comments on the proposed revisions are due by August 17, 2026. Click for a copy of the proposed revisions.
Nutter Notes: The proposal also would change certain composite rating definitions to align with the agencies’ approach of ensuring that the CAMELS rating system focuses on an institution’s financial condition and risk profile, with emphasis on material financial risks. Specifically, the proposal would revise the composite 1 and 2 rating definitions to clarify that institutions with these ratings have strong or satisfactory financial performance, respectively, and only minor or moderate risk management weakness. The proposal would change the composite 3 rating definition to state that institutions should receive this rating if they “exhibit less than satisfactory financial performance or inadequate risk management practices that result in material financial risk to the institution.” According to the FFIEC, institutions may also be assigned a 3 rating if they exhibit significant noncompliance with laws and regulations. The proposal would change the definition of a composite 4 rating to state that institutions should receive this rating if they exhibit “deficient” financial performance. According to the FFIEC, risk management weaknesses that do not result in observable deterioration of financial condition or material financial risk would not alone support a composite rating of 4 or 5. Finally, the proposal would clarify that institutions that exhibit critically deficient financial performance should receive a composite 5 rating.
2. Federal Reserve Issues Proposal for New Type of Reserve Bank Payment Account
The Federal Reserve has released a proposal to establish a “payment account” at the Federal Reserve Banks that could be used by eligible financial institutions, including uninsured depository institutions, for the purpose of clearing and settling their payments. According to the proposal issued on May 20, such payment accounts would facilitate access by eligible institutions to certain Federal Reserve services, subject to a standardized set of terms that reduces the operational complexity and residual risk profile of payment accounts relative to Federal Reserve master accounts. Under the proposal, any financial institution that is legally eligible under the Federal Reserve Act or other federal statute to maintain an account at a Federal Reserve Bank and receive services would be eligible to open a payment account. Payment account services would include access to Fedwire, FedNow, the National Settlement Service, and the Fedwire Securities Service for securities transfers free of payment. Comments on the payment account proposal are due by June 9, 2026. Click for a copy of the proposal.
Nutter Notes: The proposal could create a means for fintechs and other nondepository financial institutions that operate under special-purpose bank or trust company charters to directly clear and settle transactions through the Federal Reserve’s payment systems. As proposed, Federal Reserve payment accounts would be limited to clearing and settling of the account holder’s payment activity. Payment account holders would not have access to Federal Reserve Bank credit, either through the discount window or through daylight overdrafts. As a result, payment account holders would only have access to services that have automated controls to prevent an overdraft in the accounts. Payment accounts would be subject to a closing balance limit set by each Federal Reserve Bank for an individual account holder based on expected payment activity in the account, not to exceed $1 billion. There would be no access to intraday credit through a payment account. The Federal Reserve Banks would not pay interest on balances held in payment accounts. A payment account holder would not be permitted to use the account to act as a correspondent for other institutions to settle their payments activity through the account.
3. FDIC Proposes Rule to Implement BSA/AML Compliance for Payment Stablecoin Issuers
The FDIC has released a proposed rule that would implement Bank Secrecy Act (BSA) and sanctions compliance standards for FDIC-supervised permitted payment stablecoin issuers (PPSIs) as required by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The proposed rule published on May 22 would require FDIC-supervised PPSIs to comply with applicable regulations regarding anti-money laundering/countering the financing of terrorism (AML/CFT) and economic sanctions programs, and reporting requirements, including requirements established by FinCEN and the Office of Foreign Assets Control (OFAC). The proposed rule also would establish a supervision and enforcement framework that would require the FDIC to notify and consult with FinCEN when the FDIC intends to initiate an AML/CFT enforcement action or a significant AML/CFT supervisory action. Comments on the proposed rule will be due within 60 days after it is published in the Federal Register, which is expected shortly. Click for a copy of the proposed rule.
Nutter Notes: The GENIUS Act requires the FDIC, along with the other primary federal payment stablecoin regulators—the OCC and the Federal Reserve—and the Department of Treasury, to implement regulations to carry out the GENIUS Act’s requirements in establishing a federal payment stablecoin regulatory framework for supervised entities. The GENIUS Act also requires that the FDIC must issue regulations implementing appropriate operational, compliance, and information technology risk management principles-based requirements and standards, including BSA and sanctions compliance standards, that are tailored to the business model and risk profile of PPSIs and consistent with applicable law. The FDIC is the primary federal payment stablecoin regulator of PPSIs that are subsidiaries of insured state nonmember banks and state savings associations approved by the FDIC to issue payment stablecoins. On April 10, 2026, FinCEN and OFAC issued a separate proposed rule that would implement the GENIUS Act’s directive to treat PPSIs as financial institutions under the BSA, and implement the GENIUS Act’s directive to require PPSIs to maintain effective economic sanctions compliance programs.
4. OCC Clarifies Federal Preemption of State Interest-on-Escrow Laws
The OCC has issued two final rules that clarify the real estate lending powers of national banks and federal savings associations related to the payment of interest on funds held in escrow accounts. The final rules released on May 15 include a preemption determination concluding that federal law preempts state laws that restrict OCC-regulated banks’ flexibility to decide whether and to what extent to pay interest on funds placed in real estate escrow accounts or assess fees in connection with such accounts. The final preemption determination applies to a New York interest-on-escrow law and the laws of other states with substantively equivalent terms. New York’s interest-on-escrow law requires “mortgage investing institutions,” including banks, to pay interest at a rate of not less than 2% per year or a rate prescribed by the New York bank regulator on escrow account balances. The preemption determination also applies to a Massachusetts law requiring the payment of interest on escrow accounts established for the payment of real estate taxes in connection with residential mortgages. The OCC’s preemption determination complements a final rule issued concurrently that codifies national banks’ and federal savings associations’ escrow accounts powers. Click for a copy of the preemption determination and click for a copy of the final rule.
Nutter Notes: The OCC’s final rule codifies that the powers of national banks and federal savings associations include establishing and maintaining escrow accounts in connection with real estate loans. The final rule also clarifies that such OCC-regulated banks have the authority to set the terms and conditions of such escrow accounts, including, but not limited to, terms governing the investment of escrowed funds, fees assessed for the provision of such accounts, and whether and to what extent interest or other compensation is calculated and paid to customers whose funds are placed in the escrow account. The final rule defines an “escrow account” as an account established in connection with a loan or extension of credit secured by a lien on interest in real estate in which the borrower places funds for the purpose of ensuring payment of taxes, insurance premiums, or other charges with respect to the pledged property. The final rule will become effective on June 18.
5. Other Developments: FDIC Official Signs and Equal Credit
- FDIC Updates Guidance on Official FDIC Signs and Advertising Requirements
The FDIC has updated its guidance in the form of Questions and Answers (Q&As) related to the regulations governing FDIC official and misuse of the FDIC name or logo. The updated Q&As clarify that the FDIC official sign is required to be posted at a new accounts desk if deposits are “usually and normally” received and processed at the new accounts desk. Click to access the updated Q&As.
Nutter Notes: The FDIC’s updated Q&As also note that on January 29, 2026, the FDIC amended requirements relating to the display of the FDIC Official Digital Sign and other signage on bank websites, mobile applications, and ATMs, and that the compliance date for these amended provisions is April 1, 2027.
- CFPB Adopts Final Amendments to ECOA Data Collection Regulations
The CFPB has adopted a final rule revising certain provisions of Regulation B that implement certain data collection requirements under the Equal Credit Opportunity Act, as amended by section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB’s amendments are intended to streamline the requirements, reduce complexity for lenders, and improve data quality. The final rule will become effective on June 30, 2026, and compliance will become mandatory on January 1, 2028. Click for a copy of the final rule.
Nutter Notes: Among other changes, the final rule amends Regulation B to exclude merchant cash advances, agricultural lending, and small dollar loans from the definition of “covered credit transaction” because the CFPB believes that the rule should “focus on the core, widely used lending products most likely to be foundational to small businesses’ formation and operation.”
Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Daniel W. Hartman and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:
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Matthew D. Hanaghan Tel: (617) 439-2583 |
Daniel W. Hartman |
Michael K. Krebs Tel: (617) 439-2288 |
Kate Henry |
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
