Banking in the Ninth

Savings and Loan Holding Company Ratings

Safety and Soundness Update - September 2011

Published September 1, 2011  | September 2011 issue

Rating Savings and Loan Holding Companies

The Federal Reserve, as of July 21, 2011, supervises over 400 savings and loan holding companies (SLHCs). In the Ninth District, there are 25 SLHCs: two with consolidated assets in excess of $50 billion, one with consolidated assets slightly over $1 billion and the balance primarily representing organizations whose primary asset is a savings association with total assets of less than $1 billion (small shell companies).

In April 2011, the Federal Reserve issued a notice of intent explaining how we plan to implement our new supervisory authority (granted under the Dodd-Frank Act), including a discussion of applying the Federal Reserve’s RFI/C(D) rating (RFI) for bank holding companies (BHCs) to SLHCs. The Federal Reserve will issue a notice shortly outlining application of the RFI rating system to SLHCs. The notice will offer the public the opportunity to comment. In the interim, SR letter 11-11, Supervision of Savings and Loan Holding Companies, provides guidance on rating SLHCs until final ruling. We highlight a few points related to rating SLHCs from this guidance that Ninth District SLHCs should be aware of.

As a general matter, the Federal Reserve plans to apply our supervisory program for BHCs to SLHCs to the fullest extent possible. This means, for example, that small shell SLHCs will be supervised like small shell BHCs (per SR letter 02-1). What does that mean in terms of rating SLHCs?

The Federal Reserve anticipates transitioning SLHCs to the RFI rating (for BHCs described in SR letter 04-18, Bank Holding Company Rating System). A key part of the transition concerns the use of indicative ratings. Specifically, the first inspection and assignment of an indicative rating informing the SLHC how it would be rated if the RFI rating system were formally applied will follow upon receipt of the primary federal or state banking regulator’s report of examination of the savings association. Considering the time required for the primary federal or state banking regulator to complete an examination and issue a report of examination, the Federal Reserve does not expect to issue or assign indicative ratings to SLHCs until late 2011 or early 2012.

For small shell BHCs, the Federal Reserve relies significantly—or exclusively, in the case of holding companies with underling banks in satisfactory conditions—on the rating of the primary bank supervisor in assigning a holding company rating. This same approach would govern our ratings of small shell SLHCs. In contrast, for larger or complex organizations, the BHC rating is driven to a much greater degree by an independent Federal Reserve assessment, and the same approach will apply to larger and/or more complex SLHCs. SR letter 11-11 provides general guidance on the Federal Reserve’s approach to these SLHCs.

We strongly encourage interested parties to provide comments on the proposed guidance. Your views on the proposal are very important inputs to producing effective guidance.