NCUA Eliminates Wall Street Ratings As Benchmark For CU Investing
May 10, 2011
May 10, 2011
The National Credit Union Administration (NCUA) has proposed a new rule that would no longer require ratings by Wall Street agencies for investments until the agency replaces the traditional ratings benchmark with definitive guidance.
NCUA proposal is required under the Wall Street Reform and Consumer Protection Act. These provisions are in response to the failure of the rating agencies to properly evaluate securities risk. Many of the toxic mortgage-backed securities owned by the five failed corporate credit unions were AAA-rated by Standard & Poors, Fitch, and Moody’s when they were purchased.
The proposal would replace these ratings with either narrative standards or a credit union’s own internal standard.
Under the proposal, credit unions would be required to explain how the securities it purchases or counterparties with which it does business meet the applicable standards. Credit unions would be required to develop, maintain and apply criteria for assessing the creditworthiness of securities and counterparties.
NCUA is working with the Securities and Exchange Commission and other financial regulators to provide guidance for investing.
The comment period ended on May 2.
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