National banks will have to use a new set of standards to measure whether investments are safe after the Office of the Comptroller of the Currency issued a final rule ending banks’ reliance on credit ratings.
Instead, OCC-regulated national banks will need to use a combination of internal analysis, third-party research and analytics that use external credit ratings in order to conclude that a security is investment grade, according to guidance issued today by the agency.
The banks must apply a similar level of analysis to their investments as they do for the loans they make, the agency said.
“The OCC expects national banks and federal savings associations to conduct an appropriate level of due diligence to understand the inherent risks and determine that a security is a permissible investment,” the guidance said.
Inflated credit ratings played a central role in the 2008 financial crisis, leading U.S. lawmakers to require federal regulators to stop using them as part of the 2010 Dodd-Frank Act. The OCC rule, effective Jan. 1, takes the ratings out of regulations involving banks’ investment securities, securities offerings, and foreign bank capital equivalency deposits.
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