U.S. banking regulators are trying to find alternatives to credit ratings for use in their capital rules for banks.

The agencies — including the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation — published an advance notice of proposed rulemaking Tuesday that solicits comment on alternative standards of creditworthiness that could be used in lieu of credit ratings in their capital rules.

The advance notice requests comment on a set of criteria that the agencies believe are important in evaluating standards of creditworthiness, including risk sensitivity, transparency, consistency, and simplicity. It also asks for comment on a range of potential approaches, including basing capital requirements on more granular supervisory risk weights or on market-based metrics, as well as on how these approaches might apply to different exposure categories. And, it seeks comment on the feasibility of using such alternatives, and the burden this would create for banks.

The regulators note that this effort only deals with the references to credit ratings in their capital rules, and that proposals for removing references to credit ratings in other parts of their regulations will follow separately.

The advance notice, which is out for comment for 60 days, comes in response to regulatory reform passed earlier this year in the United States, requiring the agencies to review regulations that require an assessment of the credit-worthiness, and contain references to or requirements regarding credit ratings. The agencies are required to remove these references and requirements and substitute in their place uniform standards, wherever feasible.

IE