OCC Proposes Rule to Remove References to Credit Ratings and Guidance on Due Diligence Requirements in Determining Whether Investment Securities Are Eligible for Investment

WASHINGTON — The Office of the Comptroller of the Currency (OCC) proposed a rule to remove references to credit ratings from various OCC regulations and related guidance today to assist national banks and federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments.

The proposed rule and guidance was published in the Federal Register.  Comments may be submitted through December 29, 2011.

Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires federal agencies to review regulations that require the use of an assessment of creditworthiness of a security or money market instrument and any references to, or requirements, in those regulations regarding credit ratings.  Section 939A then requires the federal agencies to modify the regulations identified during the review to substitute any references to, or requirements of, reliance on credit ratings with such standards of creditworthiness that each agency determines to be appropriate.

The proposed OCC rule would remove references to credit ratings in the OCC’s non-capital regulations.  In particular, the OCC proposes to amend the definition of “investment grade” in 12 CFR Part 1 to no longer reference credit ratings.  In addition to following the standard under the proposed rule, national banks and federal savings associations would be expected to continue to maintain appropriate ongoing reviews of their investment portfolios to verify that they meet safety and soundness requirements appropriate for the institution’s risk profile and for the size and complexity of the portfolios.

The proposed guidance clarifies steps national banks should take to demonstrate they have properly verified their investments meet the newly established credit quality standards under 12 CFR Part 1 and steps national banks and federal savings associations should take to demonstrate they met due diligence requirements when purchasing investment securities and conducting ongoing reviews of their investment portfolios.  Additionally, when purchasing corporate debt securities, Federal savings associations will need to follow requirements to be established by the Federal Deposit Insurance Corporation pursuant to 12 U.S.C. 1831e(d) (as amended by section 939(a)(2) of the Dodd-Frank Act).

Related Links

• Notice of Proposed Rulemaking (PDF)
• Notice of Proposed Guidance (PDF)