Government-Sponsored Enterprises:

Using Private Risk Ratings for Exemptions From Federal Regulations

GGD-92-10: Published: Nov 6, 1991. Publicly Released: Nov 6, 1991.

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James L. Bothwell
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GAO compared the risk ratings of government-sponsored enterprises (GSE) done by bank regulators and nationally recognized statistical rating organizations (NRSRO).

GAO found that: (1) although NRSRO ratings and banks' process of assessing capital, assets, management, earnings, and liquidity (CAMEL) to determine rate risks were similar, they differed often enough that one could not be readily substituted for the other; (2) no major differences existed between regulatory and NRSRO ratings for the least risky institutions; (3) neither bank regulators nor NRSRO consistently reported risk changes, and often did not have a common view of bank activity risks; (4) if low rating results from banks are assumed to be consistent with expected experience for enterprises, then a safe-harbor proposal limited to enterprises receiving two triple-A ratings would be unlikely to result in rate misclassifications, but if the safe-harbor proposal incorporates rating categories below this highest level, then the possibility of misclassification would be greater; and (5) since NRSRO and CAMEL ratings often differed, having both ratings would offer better information to the government than relying on only one.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: P.L. 102-550 does not contain a safe-harbor provision.

    Matter: If the experience from banks provides a reasonable basis for assessing how an enterprise safe-harbor would work, then Congress may wish to consider restricting any regulatory safe-harbor to triple-A rated enterprises.


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