On December 7, 2011, the FRB, the FDIC and the OCC (collectively, the “Agencies”) issued a joint release announcing they are seeking comment on an amendment to the notice of proposed rulemaking (the “NPR”) to modify the Agencies’ market risk capital rules, published in the Federal Register on January 11, 2011 (the “January 2011 NPR”).
Under the Dodd-Frank Act, all federal agencies must remove references to, and requirements of, reliance on credit ratings from their regulations and replace them with appropriate alternatives for evaluating creditworthiness. The January 2011 NPR included modifications to the agencies’ market risk capital rules for banking organizations with significant trading activities. The NPR proposes alternative standards of creditworthiness to be used in place of credit ratings in determining the capital requirements for certain debt and securitization positions covered by the market risk capitalization rules. Such alternative standards include the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions, company-specific financial information and stock market volatility for corporate debt positions, and a supervisory formula for securitization positions.
The Agencies have requested comments on the NPR by February 2, 2012, and expect to publish a final market risk capital rule after reviewing comments to both the NPR and the January 2011 NPR.