WASHINGTON – Federal regulators this week took another step toward lessening banks' reliance on credit ratings by proposing three methods for assessing risk on firms' trading books.
The joint proposal, issued by the Federal Deposit Insurance Corp., the Federal Reserve Board, and the Office of the Comptroller of the Currency, was approved by the FDIC board by a 3-0 vote. It would establish new capital requirements by using alternative means for evaluating how much capital banks will need to hold to offset risks with investments in securitizations and debt, reported American Banker, an affiliate of Credit Union Journal.
The new methodology will “cause a significant increase in capital charges for certain positions, particularly for those positions that were downgraded throughout the crisis,” according to an FDIC official who spoke with American Banker on condition of anonymity.
The plan would only apply to the largest, most complex financial institutions – less than 20 banks in total – which have more than $10 billion in total trading assets and liabilities or would have more than 10% of their assets in trading liability.
