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Friday, June 8, 2012

Fed Approves Rule Removing Credit Ratings From Capital Requirements

The Federal Reserve yesterday also approved a joint final rule that implements changes to the agencies’ market risk capital rules, which requires banking organizations with significant trading activities to adjust their capital requirements to better account for the activities’ market risks.

The rule “implements certain revisions made by the Basel Committee on Banking Supervision to its market risk framework between 2005 and 2010,” the Fed said in a press release. It does not, however, include those aspects of the Basel Committee's market risk framework that rely on credit ratings.

“Instead, the final rule includes alternative standards of creditworthiness for determining specific risk capital requirements for certain debt and securitization positions,” the Fed said. “These standards are consistent with the requirements of [the Dodd-Frank Act], under which all federal agencies must remove from their regulations references to, and requirements of reliance on, credit ratings.”

The final rule -- which the FDIC will consider at its board meeting next week -- is effective Jan. 1, 2013.

Read more.
Read the final rule.

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