In-Depth: Bank Compliant Services

MBPA Principals on Bank Compliance

Pursuant to Dodd-Frank, effective January 1, 2013, banks are no longer able to rely solely on the credit ratings of Nationally Recognized Statistical Rating Organizations (“NRSROs”), such as Moody's Investor Service, Standard & Poor's Rating Services and Fitch Ratings for determining whether their portfolio of municipal securities is of an investment grade quality.

Each bank is required to analyze each investment as to its creditworthiness prior to purchase and then annually thereafter.

MBPA is able to perform these legally required analytical services at a very attractive and competitive price. We analyze each credit's investment grade pursuant to the rules and guidelines established by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") and provide, annually, a written report for each municipal investment held by the bank.

The above analysis complies with the Federal regulators’ mandates regarding the maintenance of an "appropriate and effective portfolio risk management framework."

The information derived above, together with a spread comparison between comparable bonds that are similar in nature to the bond being analyzed, and the analyzed bond is used to provide confirmation of the necessary factors required to be in compliance with those mandates.

These include:

  1. a low risk of default consistent with bonds of similar credit quality;
  2. an issuer’s capacity to pay;
  3. the soundness and stability of an issuer's budget and tax revenues;
  4. the sufficiency of the pledged revenue stream in the case of a revenue bond to support the debt service; and
  5. the adequacy and stability of the local demographics of the issuer.

Based upon our findings we are able to conclude, and so demonstrate in our reports to our clients, whether there has been any significant change in the creditworthiness of the bond under review and whether to hold or sell a particular bond.

Our report also allows our clients to verify to the regulators that their portfolios meet "safety and soundness requirements that are appropriate for the institution's risk profile and for the size and complexity of their portfolios" as required by Dodd-Frank.

Worth T. Blackwell, Principal
H. Gilmer Nix, Principal
Andrew V. Pittman, Principal

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