How good are a bank's investments? An OCC rule that goes into effect in January says banks can't rely on credit ratings to answer that question.
"In plain English the OCC is telling banks they need to find an alternative to credit ratings to judge the quality of their investment securities. That means they have to do the analysis themselves or hire an expert," writes American Banker’s Barbara Rehm.
Lawmakers drafting Dodd-Frank were frustrated with the credit rating agencies. Section 939A of the law instructs regulators "to remove references to credit ratings from existing rules," explains Rehm.
The problem is coming up with alternate research is quite a costly undertaking. "Instead of strengthening the credit ratings agencies' standards, they are putting the burden on banks," says Peter Inverso of Roma Bank.
And it could also lead to banks concentrating their investments in Treasuries, which are considered safe enough to not need such research.
For the full piece see "Small Banks to Get Squeezed by OCC Credit Ratings Rule" (may require subscription).