Insights

Impact of Proposed Alternatives to Credit Ratings in Market Risk Capital Rules

The failures of rating agencies, particularly in rating structured products, were a major contributor to the recent financial crisis. Section 939 of Dodd-Frank addresses this fact by requiring all federal agencies to remove references to (and requirements of) reliance on credit ratings from their regulations and to replace them with appropriate alternatives for evaluating creditworthiness. This requirement has given US regulators a very difficult task.

The OCC, Federal Reserve and FDIC have recently issued a joint Notice of Proposed Rulemaking (NPR) to address this legislative requirement in the context of the Agencies’ market risk rules.  The NPR lays out proposed treatment methods for each of several exposure categories and discusses some alternatives in the context of requests for further comments.

In our Point of View, Impact of Proposed Alternatives to Credit Ratings in Market Risk Capital Rules, we evaluate the proposal, highlight some of its achievements and limitations and propose an associated agenda for our clients.

Impact of Proposed Alternatives to Credit Ratings in Market Risk Capital Rules

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