An investment banking firm is warning federal regulators that a congressional mandate to stop relying on the credit ratings of Standard & Poor's and other agencies could be disruptive to the MBS market and increase capital requirements for depository institutions.

It could have "severe unintended consequences to bank and thrift capital and lending capacity from disruptions in pricing and liquidity" in the MBS market, said Sandler O'Neill Partners in a comment letter to the banking agencies.

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