Rule removes ‘external credit ratings’ from insurer’s international bank regulations

References to “external credit ratings” related to permissible investment activities and pledging of assets have been removed from international banking regulations by the federal deposit insurer and replaced with “appropriate standards of creditworthiness.”

In a release Thursday, the Federal Deposit Insurance Corp. (FDIC) said the agency board adopted the final rule making the change Wednesday. The change, according to FDIC, are consistent with Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), “review of reliance on ratings.”

The changes are outlined in FDIC Financial Institution Letter (FIL) FIL-9-2018.

The agency said that the change replaces references to “credit ratings” in the definition of “investment grade” in parts of existing regulation with “a standard of creditworthiness adopted in other federal regulations that conform to Section 939A.”

The agency said “investment grade” is defined as a security issued by an entity with adequate capacity to meet financial commitments for the projected life of the security or exposure. “An entity has adequate capacity to meet financial commitments if the default risk is low, and the full and timely repayment of principal and interest is expected,” the deposit insurer said.

Other points noted by FDIC were:

  • Subpart B amendments also require that assets pledged to the FDIC by the insured branches of foreign banks satisfy a liquidity standard and be subject to a fair value discount.
  • The final rule adds cash to the list of assets eligible for pledging and separately lists Government Sponsored Enterprise obligations as a pledgeable asset category.

Final Rule to Remove References to Credit Ratings from the FDIC’S International Banking Regulations