A bulletin issued on Wednesday by the Office of the Comptroller of the Currency reminds federal savings associations that they will need to review a final rule and guidance issued in July by the Federal Deposit Insurance Corporation on investments in corporate debt securities. These institutions have until Jan. 1, 2013 to comply with that rule, as well as the OCC's final rules regarding investments in other securities.

The Dodd-Frank Act authorized the FDIC to issue a final rule to establish “standards of creditworthiness” that replaces previously used “investment grade” standards for corporate debt security investments held or acquired by savings associations. Although the final rule was effective on July 21, a transition period was allowed that extended the compliance deadline until the New Year.

Details of the rule, which applies to all savings associations, include the following:

Before acquiring a corporate debt security, and periodically thereafter, a savings association must determine that the issuer has adequate capacity to meet all financial commitments for its projected life.

FDIC standards of creditworthiness will be satisfied if an issuer presents a low risk of default and is likely to make full and timely repayment of principal and interest.

A due diligence analysis may include internal analysis, third-party research, and the default statistics of external credit rating agencies. The range and type of factors an institution should consider will vary depending on the particular type and nature of the security.

The FDIC does not expect the final rule to change the scope of permissible corporate debt securities investments. If a corporate bond was a permissible investment prior to this final rule, then a bond with similar default probabilities will also be permissible.