On August 3, 2017, the Federal Reserve Board (Fed) released a notice of proposed rulemaking that would establish a new rating system for large financial institutions (LFIs). Specifically, the new rating system would apply to bank holding companies (BHCs) and non-insurance, non-commercial savings and loan holding companies (SLHCs) with more than $50 billion in total assets, as well as intermediate holding companies (IHCs) of foreign banking organizations.
The proposal includes a new rating scale under which component ratings would be assigned for:
- Capital planning and positions,
- Liquidity risk management and positions, and
- Governance and controls.
In essence, the Fed is revamping its rating system for LFIs to catch up with the Fed’s post-crisis heightened supervisory expectations and approach to LFI supervision. The Fed proposes to assign initial ratings under the new rating system during 2018.