Bloomberg News

Bank Regulator Proposes Risk Measures to Replace Credit Ratings

December 01, 2011

Nov. 29 (Bloomberg) -- U.S. banking regulators proposed a rule required by the Dodd-Frank Act that would strip credit- ratings references from quality standards used in evaluating investment portfolios.

Under the proposal released today by the Office of the Comptroller of the Currency, banks would have to seek alternative measures of creditworthiness in investment securities, securities offerings, and foreign bank capital equivalency deposits. The agency said in a statement that it would take public comments on the proposal for the next 30 days.

“National banks and federal savings associations would be expected to continue to maintain appropriate ongoing reviews of their investment portfolios,” the OCC statement said, requiring banks to verify they meet safety standards “appropriate for the institution’s risk profile.”

For national banks purchasing securities, the proposal replaces credit ratings with a demonstration that the security issuer can “meet financial commitments under the security for the projected life of the asset or exposure.”

The Dodd-Frank financial regulatory overhaul required federal agencies to replace references to ratings with an “appropriate” alternative after Moody’s Investors Service and McGraw-Hill’s Standard & Poor’s unit gave high marks to subprime mortgage bonds that contributed to the housing bubble. In February, John Walsh, acting Comptroller of the Currency, told lawmakers that the credit-rating ban could make it difficult for U.S. regulators to adopt the Basel III capital and liquidity framework.

--Editors: Lawrence Roberts, Gregory Mott

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


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