US bank regulators move to replace (phony) credit ratings

[jpak]

http://www.reuters.com/article/idUSN1010040520100810

U.S. banking regulators took a first step on Tuesday on the road to replacing the use of private credit ratings to assess the soundness of banks, while also expressing nervousness about the transition.

Under the new Dodd-Frank financial regulatory overhaul law, bank regulators over the next year will have to propose alternatives to the use of private credit ratings in their assessments of banks' capital levels.

Credit rating providers, such as Moody's (MCO.N) and Standard & Poor's (MHP.N), have faced stiff criticism for their role in the 2007-2009 financial crisis. They have been been widely accused of giving overly high marks to securities that proved to be risky and eventually contributed to the instability of financial markets.

Federal Deposit Insurance Corp board members on Tuesday asked for public comment on possible alternatives to private credit ratings. They include relying more on credit spreads, banks' own internal risk models and metrics developed by the regulators.

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