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Proposed Revisions to the Bank Holding Company Rating System
July 29, 2004
Circular No. 11631
To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
The Federal Reserve Board published for public comment proposed revisions that would better align the bank holding company (BHC) rating system with current supervisory practices.
The proposed rating system incorporates an increased emphasis on risk management, a more flexible and comprehensive evaluation of financial conditions, and an explicit determination of the likelihood that the nondepository entities of a holding company will have a significant negative impact on the depository subsidiaries.
Under the revised rating system, each holding company would be assigned a composite rating (C) based on an evaluation and rating of three essential components of an institution's financial condition and operations: risk management (R); financial condition (F); and potential impact (I) of the parent company and nondepository subsidiaries on the subsidiary depository institutions. A fourth component in the rating system, (D), would generally mirror the primary supervisors' assessment of the subsidiary depository institutions. (A simplified version of the rating system would be applied to noncomplex bank holding companies with assets of less than $1 billion.)
The proposal also contains guidance on implementing the revised rating system based on holding company size and complexity.
Comment on the proposed revisions is requested within sixty days of publication in the Federal Register, expected shortly.