As required by Section 939A of the Dodd-Frank Act, the Office of the Comptroller of the Currency (OCC) on November 29, 2011 issued proposed rules to amend the definition of investment grade to remove references to credit ratings in their non-capital regulations, including those related to securities offerings.

Although certain banks can issue debt securities exempt from SEC registration, before national banks and licensed US branches and agencies of non-US banks can issue securities, they must:

OCC regulations currently provide OCC-regulated institutions an optional abbreviated registration system under certain conditions, including that the securities issued are rated investment grade (12 C.F.R. Part 16).

The OCC's proposed rules would amend the definition of investment grade to replace references to credit ratings with alternative standards of creditworthiness. Part 16 would be amended to make a security investment grade only if the issuer of the security has an "adequate capacity to meet financial commitments" under the security for the projected life of the investment. The quoted language would replace the reference to credit ratings and require OCC-regulated institutions to determine that the risk of default is low and the full and timely repayment of principal and interest is expected.

The proposed rules would impose the same standard for these financial institutions to evaluate permissible securities investments which currently focus on investment grade ratings.

For more information on bank securities offerings, see Practice Note, Bank Securities Offerings Exempt Under Section 3(a)(2).

For more information on the impact of the proposed rules on banking regulation generally, see Legal Update, OCC Proposes Rule to Remove References to Credit Ratings and Provide Guidance on Evaluating Risks.