ABA Raises Concerns about Fed’s Proposed SIFI Risk Rating System

In a comment letter to the Federal Reserve today, the American Bankers Association raised concerns about the Federal Reserve’s proposed supervisory rating scale for large bank holding companies with more than $50 billion in assets. The new scale would assign ratings for capital planning, liquidity risk management and governance and controls. Banks would be assigned ratings in each category, rather than receiving a standalone composite rating, and each category must be highly rated for the bank holding company to be considered “well-managed.”

While ABA acknowledged the Fed’s efforts to better harmonize the ratings system with its existing supervisory program, the association urged the agency to address several key issues as it moves forward. Specifically, ABA called for more detailed definitions of the proposed ratings categories, and for the Fed to reconsider the consequences of a single “deficient rating.” ABA also noted inconsistencies between the proposal and regulators’ current approaches to capital and liquidity component ratings.

The association cautioned that “without clear direction in the final guidance, the new rating system could result in supervisory expectations being applied to all ‘large’ institutions in a ‘one-size-fits-all’ manner not reflective of individual risk profiles, business models and other characteristics.” For more information, contact ABA’s Hu Benton.