FRB: Proposed Revision of the Bank Holding Company Ratings System 2004

ABA Contact: Paul Smith, (202) 663-5331
Published:69 Federal Register 43996; July 23, 2004
Comments Due: September 21, 2004
Disposition: Filed

The FRB proposes to move to a BHC rating system that more reflects the risk-focus of the new bank and BHC examination procedures. ABA members reported that the proposal reflected changes in examinations over the last 10 years, and ABA did not oppose the changes.

The current BHC rating system was implemented in 1979. Known as BOPEC/F–M, the rating system components are defined as follows:

  • The B rating represents the Federal Reserve's view of the condition of the banking subsidiary(ies).
  • The O rating represents the Federal Reserve's view of the condition of the nonbank subsidiary(ies).
  • The P rating represents the Federal Reserve's view of the condition of the parent company.
  • The E and C represent the Federal Reserve's view of the consolidated capital and earnings position of the BHC, respectively.
  • The F rating represents the financial composite rating, whereas the M represents the management composite rating.

The new rating consists of three essential components and eight subcomponents of an institution's financial condition and operations: R F I / C (D). The main components represent: R – risk management; F – financial condition; I– impact of the parent company and nondepository subsidiaries (collectively nondepository entities) on the subsidiary depository institutions. A fourth rating, (D), will generally mirror the primary regulator's assessment of the subsidiary depository institutions.

The R rating is supported by four subcomponents:

  • Competence of Board and Senior Management;
  • Policies, Procedures and Limits;
  • Risk Monitoring and MIS; and
  • Internal Controls

The F rating is supported by four subcomponents that consist of the following: C (capital), A (asset quality), E (earnings), and L (liquidity). The CAEL subcomponents can be evaluated along individual business lines, product lines, or on a legal entity basis, depending on what is most appropriate.

The (D) component will generally reflect the composite CAMELS rating assigned by the subsidiary depository institution's primary regulator. In a multi–bank BHC, the (D) rating will reflect the combined CAMELS composite ratings of the individual subsidiary depository institutions, and will consider both asset size and the relative importance of each depository institution within the holding company structure.

2004 Regulations Chart
Federal Register
Final Rule
Comment Letter