New Rating System for Large Financial Institutions

The Federal Reserve finalized a new supervisory rating scale for large bank holding companies to better align the ratings system with its existing supervisory program. The new rating system will apply to all domestic bank holding companies and non-insurance, non-commercial savings and loan holding companies with $100 billion or more in total consolidated assets, which is a change from the $50 billion threshold originally proposed. The new rating system will also apply to U.S. intermediate holding companies of foreign banking organizations with $50 billion or more in total consolidated assets.  The new scale assigns ratings for capital planning, liquidity risk management and governance and controls.  Banks will be assigned ratings in each category, rather than receiving a standalone composite rating, and each category must be highly rated for the bank holding company to be considered “well-managed.”  The rule is effective February 1, 2019.