FDIC Proposes Revising Credit Rating References in International Banking Regulations

The FDIC Board of Directors proposed amending banking regulations concerning permissible investment activities and the pledging of assets. The proposal would remove from the regulations references to external credit ratings and replace them with appropriate standards of creditworthiness.

Consistent with Dodd-Frank Act Section 939A requirements, the proposed rulemaking would:

• amend the provisions of subparts A and B of Part 347 that reference credit ratings;

• amend references to credit ratings within the definition of "investment grade" in order to apply the same standard of creditworthiness that has been adopted in other federal regulations in accordance with Section 939A;

• revise the eligibility criteria for the types of assets that foreign banks may pledge by replacing the references to credit ratings with the revised definition of "investment grade," which would (i) apply to each type of pledgeable asset, (ii) establish a liquidity requirement for such assets, and (iii) subject them to a fair value discount; and

• introduce cash as a new asset type that foreign banks may pledge under subpart B, which in turn would create a separate asset category expressly for debt securities issued by government-sponsored enterprises.

The proposal would apply to both insured state nonmember banks that operate foreign branches and insured U.S. branches of foreign banks that "generally . . . do not have less than $1 billion in assets." Comments on the proposal must be submitted 60 days following its publication in the Federal Register.