Interim Rule On An Alternative To The Debt Rating Requirement For Establishing Financial Subsidiaries - Brief Article

Federal Reserve Bulletin, May, 2000

The Federal Reserve Board and the Secretary of the Treasury on March 14, 2000, announced their approval of an interim rule, effective March 14, 2000, establishing alternative criteria for debt ratings that certain large banks may satisfy to establish a financial subsidiary under the Financial Modernization Act.

Under the act, a national or state member bank ranked among the largest fifty insured banks may control a financial subsidiary only if the bank meets certain criteria, including having an issue of highly rated debt outstanding. The next fifty largest insured banks may control a financial subsidiary if they satisfy this debt rating requirement or an alternative requirement determined by the Treasury and the Federal Reserve. Under the interim rule, a bank meets the alternative requirement if it has a current long-term issuer credit rating from a nationally recognized statistical rating organization that is within the three highest investment-grade rating categories used by the rating organization.

Comments will be accepted on the interim rule until May 15, 2000.