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Tuesday, June 26, 2012

OCC Finalizes Rule on Credit Rating Alternatives

The OCC recently published in the Federal Register a final rule that revises its regulations on investment securities, securities offerings, and foreign bank capital-equivalency deposits to replace credit-rating references with other alternative standards of creditworthiness.

The Dodd-Frank Act-mandated rule, in particular, amends the definition of “investment grade” so that it no longer references credit ratings. Under the new standard, a security would be rated “investment grade” if its issuer has an adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure.

The rule also specifies that an issuer has an adequate capacity to meet financial requirements if the obligator’s risk of default is low, and the full, timely repayment of principal and interest is expected. Current portfolios must comply with the rule by Jan. 1, 2013.

The OCC also issued final guidance that explains the due diligence national banks and federal savings associations should conduct when purchasing investment securities for their portfolios. The guidance’s effective date is Jan. 1, 2013.

Read the final rule.
Read the final guidance.

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