credit risk

FDIC Annual Publication Examines Potential Credit and Market Risks

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The Federal Deposit Insurance Corporation (FDIC) published its annual review of the primary risk factors facing the banking system, focusing on the categories of credit risk and market risk. The key credit risk identified by the FDIC is increased competition among lenders as loan growth has slowed, posing risk management challenges given market demand for higher-yielding leveraged loan and corporate bond products, resulting in looser underwriting standards. The main market risk recognized in the report is the current interest rate environment. Release. Report.

Rating Agency Developments

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On October 4, 2016, Moody’s published its approach to rating revenue bonds of U.S. municipal Joint Action Agencies (JAA). Report.

On October 3, 2016, DBRS published derivative criteria for European structured finance transactions. Report.

On October 3, 2016, Moody’s published its approach to assessing credit risk for rated issuers in the business and consumer service industry. Report.

On October 3, 2016, Moody’s published its approach to rating credit tenant lease and comparable lease financings. Report.

On October 3, 2016, Moody’s published its rating methodology for companies in the global integrated oil and gas industry. Report.

On September 30, 2016, Moody’s published methodology for rating debt issuance under certified capital company, new markets tax credit and similar programs. Report.

On September 29, 2016, Fitch published its methodology for assigning new and monitoring existing international ratings to aircraft enhanced equipment trust certificates (EETCs). Report.

EBA Final Draft RTS on Assessment Methodology for Internal Ratings-Based Approach

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The European Banking Authority (EBA) has published final draft regulatory technical standards (RTS) on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirements to use the internal ratings-based (IRB) approach in accordance with Articles 144(2), 173(3) and 180(3)(b) of the Capital Requirements Regulation (Regulation 575/2013) (CRR).

The final draft RTS provide a mapping of the minimum IRB requirements as laid down in Chapter 3, Title II, Part Three of the CRR, into fourteen chapters. Each chapter starts with a brief description of the assessment criteria to be used by competent authorities relating to verification requests and of the methods to be used by competent authorities in this context.  Under the IRB approach, institutions determine their own funds requirements for credit risk, taking into account their own estimates of risk parameters.  Competent authorities may, under the CRR, permit institutions to use the IRB approach, provided that the relevant conditions set out in the CRR are met.

The draft RTS are available here and will now be submitted to the European Commission for endorsement.

EBA Final Draft RTS on Prudential Requirements for CSDS

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On December 16, the EBA published its final report setting out draft RTS on prudential requirements for central securities depositories (“CSDs”) under the Regulation on improving securities settlement and regulating CSDs (Regulation 909/2014) (“CSDR”). The final draft RTS relate to:

  1. The capital requirements for CSDs (required under Article 47);
  2. The additional risk-based capital surcharge reflecting the risks resulting from ancillary banking services (required under Article 54); and
  3. Details of the frameworks and tools for the monitoring, the measuring and management, the reporting and the public disclosure of credit and liquidity risks (required under Article 59).

Rating Agency Developments

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On September 24, DBRS published a report describing its approach for monitoring European CMBS ratings.  Methodology.

On September 25, DBRS published its methodology for rating European RMBS transactions issued in Europe with residential loans originated in Europe.  Methodology.

On September 25, DBRS published its methodology for rating securitizations issued in Canada with collateral originated in Canada.  Methodology.

On September 28, Fitch updated its rating criteria for infrastructure and project finance.  Criteria.

On September 28, Moody’s published its rating methodology for corporate synthetic collateralized debt obligations.  Methodology.

On September 28, Moody’s published its rating methodology for collateralized loan obligations.  Methodology.

On September 28, Moody’s updated its methodology for rating securitization transactions backed predominately by loans granted to microenterprises, small- and medium-sized enterprises (SMEs) and self-employed individuals.  Methodology.

On September 29, Fitch updated its rating criteria for toll roads, bridges and tunnels.  Criteria.

On September 29, DBRS published its methodology for rating Portuguese electricity tariff securitizations.  Methodology.

On September 30, DBRS published a report describing the criteria applied in reviewing derivatives in the context of a European structured finance transaction.  Methodology.

On September 30, Moody’s published its methodology for assessing credit risk for companies in the restaurant industry.  Methodology.

Treasury Request for Public Input on Expanding Access to Credit through Online Marketplace Lending

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“Online marketplace lending refers to the segment of the financial services industry that uses investment capital and data-driven online platforms to lend to small businesses and consumers.”[1]

On July 20, the Department of the Treasury published a Notice and Request for Information (“RFI”) seeking comment on various aspects of online marketplace lending, including –

  • the business models and products offered to small businesses and consumers
  • the potential to expand access to credit to underserved market segments
  • how the financial regulatory framework should evolve to support the growth of the industry
  • Treasury asks for comment on 14 categories of questions, some of which include multiple specific questions, which we summarize and, with respect to some, offer initial thoughts on below.

To view the full article, please click here.

[1] 80 Fed. Reg. 42866 (July 20, 2015)

Joint Proposed Rule on Credit Risk Retention

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The OCC, Fed, FDIC, SEC, FHFA, and HUD announced that they approved a notice of proposed rulemaking in accordance with Section 941 of the Dodd-Frank Act. The proposal would require that, unless a transaction is exempt, a securitization sponsor must retain a 5% economic interest in the credit risk of assets transferred to a securitization. Comments must be submitted by June 10. Proposed Rule.