Banks are applying a well-honed strategy to mitigate regulators' recent proposal to determine capital requirements for assets that include securitizations.
The strategy consists of expressing empathy for regulators' intentions, highlighting the provisions' adverse impact on the capital markets and economy and requesting a delay for further analysis. That's been the template for many of the comment letters financial institutions have submitted to weigh in on a range of proposed rules stemming from the Dodd-Frank Act. But in the case of regulators' proposal to replace ratings with an internal methodology, banks may have a point. Nobody wants a repeat of the recent financial crisis, when public ratings clearly failed to alert investors to the dangers embedded in securitizations.