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Agencies explain impact of SandP action on risk-based capital
WASHINGTON (8/8/11)--After Standard & Poor’s (S&P) rating agency lowered the long-term rating of the U.S. government and federal agencies to AA+ from AAA, the federal credit union, bank, and thrift agencies issued guidance to their regulated financial institutions. The National Credit Union Administration, Federal Reserve Board, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency said:
* For risk-based capital purposes, the risk weights for U.S. Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. * The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board’s Regulation W, will also be unaffected.
The joint-agency announcement was spurred by the widely reported action by S&P, which cut the long-term U.S. credit rating by one rank. The agency said it made the cut because the recently approved deficit reduction plan didn’t do enough to re-insert stability in the country’s debt situation. MSNBC reported that while U.S. Treasury securities were once regarded as the safest investment in the world, they now will be rated lower than bonds issued by such countries as the United Kingdom, Germany, France and Canada. The deflated rating also could increase borrowing costs across the spectrum—for the U.S. government, for companies and for consumers.


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