• Community Bank Capital and Congress’ Antipathy Toward Credit Ratings
  • September 27, 2010 | Authors: Christine A. Edwards; Marvin J. Miller
  • Law Firms: Winston & Strawn LLP - New York Office ; Winston & Strawn LLP - Chicago Office ; Winston & Strawn LLP - New York Office
  • Banks have, since 1985, been subject to a risk-based capital regime under which the amount of capital each is to maintain is to be based upon a rough calculation of the amount of risk in the assets on its balance sheet. One way in which bank regulatory rules have historically appraised that risk is to look to credit ratings by Nationally Recognized Statistical Rating Organizations (NRSROs; such as Moody’s, Standard & Poor’s and Fitch; of assets; such as corporate securities and securities representing interests in securitized assets; held by banks on their balance sheets. In some cases, rules have prohibited a national bank’s investment in certain classes of securities unless the securities carried a certain credit rating. Also, currently deposit insurance assessments on large banks are a function of long-term debt credit ratings, although, last April, the FDIC proposed elimination of credit ratings from its deposit insurance assessment rule. In addition, bank examiners have regularly used credit ratings as a basis to criticize the quality of investment securities held by banks.