Feds: Do What the NAIC Does

Federal bank regulators say banks could consider emulating the National Association of Insurance Commissioners (NAIC) when they are trying to reduce reliance on credit ratings.

The agencies are talking about that approach in a notice advising banks about upcoming changes in bank risk-based capital rules.

The agencies — the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision — plan to make the changes because of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act that are designed to reduce official reliance on the bond ratings and other ratings provided by the major rating agencies.

Bank regulators and other federal agencies once incorporated the ratings provided by the “nationally recognized statistical rating organizations” (NRSROs) in laws and regulations. Because of a belief that ratings proved to be weak indicators of level of risk during the recent financial crisis, Congress put sections in the Dodd-Frank Act that encourage agencies use other means to gauge the riskiness of securities.

Comments on the bank regulators “advanced notice of proposed rulemaking” are due Oct. 25.

In one section, bank regulators talk about how banks might weigh the risk weights of individual exposures without using rating agency ratings.