OCC Finalizes Rule to Replace Certain Credit Rating References with Alternative Creditworthiness Standards.

FDIC Dodd-Frank OCC

On June 13, pursuant to Section 939A of the Dodd-Frank Act, the OCC published a final rule with regard to regulations applicable to investment securities, securities offerings, and foreign bank capital equivalency deposits. The final rule is identical to the rule proposed by the OCC in November 2011 and will require national banks to assess whether a security issuer has an "adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure," a standard which may be met if the risk of default by the issuer is low and timely repayment of principal and interest is expected. For federal savings associations, the definition of "investment grade" would cross-reference the requirement established by the FDIC. Simultaneously, the OCC finalized guidance to outline measures (i) banks should put in place to demonstrate they have properly verified their investments, and (ii) institutions should put in place to demonstrate their compliance with due diligence requirements when making investments and reviewing investment portfolios. Specific due diligence factors will depend on the type of security, and firms will need to adjust the depth of due diligence to match the credit quality of the security, its complexity, and the size of the investment.