Banking Reliance Ends
December 11, 2011 No CommentsIn a recent hearing it was decided that large banks would no longer be able to rely on credit ratings to evaluate risks of assets they hold. The proposal was released Wednesday by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency. This is a big first step toward banks creating a system in complying with a last year’s Dodd-Frank financial-overhaul law. As of now banks are required to submit credit ratings to manage the risk assets such as a mortgage-backed securities which they then are required to calculate how much capital they must hold against potential losses.
While this proposal will only replace the use of credit ratings for a few larger banks it will have a wider range of rules for regulators’ who are thinking about how to smudge the rules and language use of credit ratings. This will force regulators into the impending rules that will also apply to small banks.
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