The Office of the Comptroller of the Currency wants lawmakers to change section 939A of the Dodd-Frank Act that requires regulators to remove any reference to credit ratings from financial regulations.
Regulators say that the requirement interferes with their efforts to implement new global capital rules in the United States,and want the clause modified, Risk.net reports.
"We have been talking to Congress and other agencies about the need for some sort of very modest fix to Dodd-Frank that turns a ‘you may never' into a ‘you may, in limited circumstances',” John Walsh, the acting comptroller of the currency for the OCC, said, according to Risk.net. “Eventually, that's where we have to be.”
Walsh acknowledged that changing the legislation would be difficult but is open to the “second best approach” that would involve implementing a rule that attempts to reflect the language of Dodd-Frank but allows market participants to use ratings where appropriate.
Without a fix, regulators will continue to struggle to implement new Basel capital rules, which rely heavily on credit ratings.
"Nobody is arguing – least of all us – that anybody should rely solely on credit ratings, particularly sophisticated institutions dealing in sophisticated products,” Walsh said, Risk.net reports. “It's more for traditional products and smaller institutions that use those ratings to make some basic investment decisions. In those contexts, the use of ratings makes sense."