On September 16, several GOP lawmakers signed a letter urging the Fed to expedite its review process for approving regulated entities’ applications for risk adjusted treatment for the direct issuance of credit-linked notes. The lawmakers emphasized that banks use credit-linked notes to diversify bank balance sheets and enhance financial resiliency and argued that use of such notes could lead to a more efficient allocation of capital, enabling banks to redeploy capital for lending activities, benefiting consumers and corporations by freeing up more capital for lending needs.
The Fed’s approval of directly issued credit-linked note transactions falls under Subpart D of Regulation Q. The Fed reviews these transactions to ensure they transfer risk and to evaluate a bank’s capital adequacy. The lawmakers stressed that an efficient review process was vital as banks prepare for increased capital requirements from the Basel III Endgame standards.
The letter urged the Fed to allocate sufficient resources to review proposed credit-linked note transactions and requested transparent timelines for reviewing and reaching final decisions on bank applications. The letter was signed by seventeen GOP representatives.
