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ABA expresses concern over the Market Risk Ratings Proposal

In a Feb. 3 letter to financial regulators, the American Bankers Association expressed concern regarding the Market Risk Ratings Proposal, stating that the proposal is far too inclusive and falls short of material necessary for rulemaking.

The Market Risks Ratings Proposal, created by the Dodd-Frank Act in 2010, directs regulatory agencies to remove and replace credit ratings with a different credit standard to be used in risk-weighting certain debt and securitizations without relying on credit ratings.

The ABA contends that while the Federal Deposit Insurance Corporation board said that the proposal would only apply to fewer than 20 institutions, proposed capital regulation shifts will essentially apply to all banks.

The ABA also argues that “the Market Risk Ratings Proposal’s scope is uncertain” and would “likely predetermine future proposals to revise the General Capital Rules,” the letter reads. General Capital Rules determine the amount of capital required to be held for a certain asset level through financial regulators.

The ABA called on the agencies to announce a general rule of applicability, allowing affected banks time to evaluate and comment on the rule, as well as “re-propose the Market Risk Ratings Proposal concurrently with the General Capital Rules proposal.”

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