Three federal bank regulators announced yesterday that they are seeking comment on a notice of proposed rulemaking (NPR) to scrub the reference of credit ratings and to replace the term with alternative standards of creditworthiness when evaluating a bank's capital requirements. The latest notice will amend the market risk NPR published earlier.

The three agencies include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. In a joint statement, these agencies said the amended NPR will address the inclusion of the alternative standards of creditworthiness to determine capital requirements for certain debts and securitization positions covered by the market risk capital rules.

The proposed alternative standard will include the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions, financial information specific to company and stock market volatility for corporate debt positions, and a supervisory formula for securitization.

It said the earlier NPR relied heavily on the Basel Committee's market risk framework on banking supervision since 2005. However, the methodology failed to include the committee's revisions that rely on credit ratings.

“The agencies believe that the capital requirements resulting from the implementation of the alternative standards would be generally consistent with the standards of the Basel Committee's revisions,” they said in the statement.

Under the Dodd-Frank Act, it was stated that all federal agencies must exclude references and reliance on credit ratings from their regulations and replace them with appropriate use of alternatives to evaluate credit worthiness.

Comments can be sent to the trio of regulators by Feb. 2, 2012.