On November 29, the Office of the Comptroller of the Currency (OCC) proposed guidance to assist national banks and Federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments. Comments must be received by December 29. Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) requires each Federal agency, within one year of enactment, to review: (i) any regulations that require the use of an assessment of the creditworthiness of a security or money market instrument, and (ii) 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 OCC proposes to amend the definition of ‘‘investment grade’’ in 12 CFR part 1 to no longer reference credit ratings. Instead, ‘‘investment grade’’ securities would be those where the issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment. An issuer has an adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely repayment of principal and interest is expected. Generally, securities with good to very strong credit quality will meet this standard. National banks will have to meet this new standard before purchasing investment securities.
The OCC also is proposing to define the term ‘‘investment grade,’’ for Federal savings associations, as it is used in Part 160, to refer to 12 U.S.C. 1831e. This effectively will reference the current ratings-based requirement until such time as the requirement is replaced by the Federal Deposit Insurance Corporation. In addition, the OCC is proposing to remove references to credit ratings applicable to commercial paper and corporate debt securities contained in §§ 160.40 and 160.93(e)(5)(ii). Under the revised rules, savings associations would be permitted to invest in commercial paper if it meets the standards set forth at 12 U.S.C. 1831e(d)(1), which currently limits savings associations to purchasing corporate debt securities that are of investment grade, but will, after July 21, 2012, include a new creditworthiness standard established by the FDIC.
In addition, the guidance calls for national banks and savings institutions to "maintain appropriate ongoing reviews" of their investment portfolios based on risk profile and the size and complexity of the securities.
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