U.S. banking regulators proposed a rule required by theDodd-Frank Act that would strip credit- ratings references fromquality standards used in evaluating investment portfolios.

Under the proposal released today by the Office of theComptroller of the Currency, banks would have to seek alternativemeasures of creditworthiness in investment securities, securitiesofferings, and foreign bank capital equivalency deposits. Theagency said in a statement that it would take public comments onthe proposal for the next 30 days.

“National banks and federal savings associations would beexpected to continue to maintain appropriate ongoing reviews oftheir investment portfolios,” the OCC statement said, requiringbanks to verify they meet safety standards “appropriate for theinstitution's risk profile.”

For national banks purchasing securities, the proposal replacescredit ratings with a demonstration that the security issuer can“meet financial commitments under the security for the projectedlife of the asset or exposure.”

The Dodd-Frank financial regulatory overhaul required federalagencies to replace references to ratings with an “appropriate”alternative after Moody's Investors Service and McGraw-Hill'sStandard & Poor's unit gave high marks to subprime mortgagebonds that contributed to the housing bubble. In February, JohnWalsh, acting Comptroller of the Currency, told lawmakers that thecredit-rating ban could make it difficult for U.S. regulators toadopt the Basel III capital and liquidity framework.

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