Federal regulators are seeking comment on a proposal that aims to lessen banks' reliance on credit ratings by proposing three methods for assessing risk on firms' trading books.
The proposal, published in the Federal Register on Dec. 21, would establish new capital requirements by using alternative standards of creditworthiness to determine how much capital banks will need to hold to offset risks with investments in securitizations and debt.
The comment period ends Feb. 3.
The joint proposal, issued by the Office of the Comptroller of the Currency, Federal Reserve Board and Federal Deposit Insurance Corp., amends an interagency notice of proposed rulemaking published Jan. 11, 2011. This is the first proposal in which the agencies have proposed to replace references to credit ratings in their respective risk-based capital regulations as required by Dodd-Frank, the OCC said in a bulletin issued to banks on Thursday.
The proposed standards include the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions; company-specific data related to leverage, cash flow, and the volatility of the company's monthly stock market returns for corporate debt positions; and a supervisory formula for securitization positions.