For Banks, S&P Downgrade Has Fallout

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WASHINGTON – Standard & Poor's downgrade of U.S. debt last week is likely to hasten the replacement of credit ratings within bank regulatory requirements, according to several analysts.

The Dodd-Frank Act enacted last year required banking agencies to remove all references to credit ratings within existing rules, but regulators have dragged their feet on carrying out that mandate, reported American Banker, an affiliate of Credit Union Journal. Instead, regulators have testified to Congress that replacing the credit ratings is easier said than done, and subtly suggested lawmakers revisit the issue.

With the S&P downgrade enraging Senate Democrats and the Treasury Department, it is highly unlikely that Congress will seek to overturn the requirement, however, and some lawmakers are expected to put more pressure on the agencies to move quickly.

“It will reinforce the view of those in Congress who believe that Dodd-Frank made the right decision,” said Wayne Abernathy, executive vice president of financial institutions policy at the American Bankers Association and a former Treasury official in the Bush administration. “What they will say is, ‘We put this provision in Dodd-Frank because these are largely as educated opinions as you want to grant them, but they’re educated opinions, and they shouldn’t be carrying with them the force of law.’”

Already, a backlash against the rating agencies appears to be developing in Congress. The Senate Banking Committee has said it will look into last week’s downgrade, and Chairman Tim Johnson said he disagreed with the rating agency’s move.


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