DBRS Comments on Basel Committee Banking Sector Proposals

DBRS has commented on the Basel Committee public consultation on strengthening the resilience of the banking sector (banking sector proposals). DBRS is a global credit rating agency with international regulatory recognition and market acceptance including as an eligible External Credit Assessment Institution (ECAI).*

DBRS has primarily focused its comments regarding the banking sector proposals on those areas that impact the use of credit ratings. DBRS agrees that excessive or sole use of credit ratings by market participants is inappropriate. Rather, credit ratings should be used as a supplementary risk and comparative tool to assist investors and other market participants in their investment decision making.

The banking sector proposals recognize that using credit ratings for capital purposes provides a “relatively standardized, harmonized, easy to understand, independent (third party) measure that generally reflects the credit quality of a counterparty, issuer or investment product.” The consultation paper also states “that the removal of external ratings from the Basel II framework could raise additional issues for determining regulatory capital requirements.” DBRS appreciates the balanced conclusions of the Basel Committee.

The consultation paper proposes the following additional measures to address the excessive reliance on external ratings: 1) require banks to perform their own internal assessments of externally rated securitisation exposures; 2) eliminate certain “cliff effects” associated with credit risk mitigation practices; and 3) incorporate key elements of the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies into the Basel II eligibility requirements for ECAIs. DBRS generally supports these banking sector proposals and believes they will add greater clarity in the use of ratings.

DBRS’s comment letter is available on www.dbrs.com under Regulatory Affairs.

DBRS has its headquarters in Toronto, with offices in New York and Chicago, and covers entities worldwide.

* Please refer to Regulatory Affairs on www.dbrs.com for a list of DBRS registrations, recognitions and approvals in Canada, the United States, Europe and other jurisdictions. As an existing ECAI, DBRS will be registering under the new European Union Regulation on Credit Rating Agencies (EU CRA Regulation) by September 2010.

Back to top