To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
The Federal Reserve Board issued a revised bank holding company (BHC) rating system. The revised system more closely aligns the Federal Reserve’s rating process with the focus of its current supervisory practices by placing an increased emphasis on risk management, providing a more flexible and comprehensive framework for evaluating financial condition, and requiring an explicit determination of the likelihood that the nondepository entities of a BHC will have a significant negative impact on the depository subsidiaries.
Under the revised rating system, each holding company is 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), mirrors the primary regulator’s assessment of the subsidiary depository institutions. A simplified version of the rating system that includes only the R and C components will be applied to noncomplex bank holding companies with assets of less than $1 billion.
The policy also contains guidance on implementation of the revised rating system based on BHC size and complexity.
The revised rating system will take effect on January 1, 2005.
Assistant Vice President,
William L. Rutledge
Executive Vice President