Does the final rule change the risk weight/conversion factor for performance standby letters of credit?
No. “Performance standby letters of credit,” as defined in the Agencies’ risk-based capital standards,11 generally do not meet the definition of a direct credit substitute. Therefore, they are not covered under the final rule and will still be converted at 50% and generally risk weighted at 100%.12 B. The final rule states that for an internal credit risk rating system for an asset-backed commercial paper program to be adequate, “an internal audit procedure should periodically verify that internal risk ratings are assigned in accordance with the banking organization’s established criteria.”13 Does the internal audit procedure have to be performed by the internal audit department or can it be performed by another independent entity within the organization? The final rule does not require the internal audit of the internal credit risk rating system to be performed by the internal audit department. Any group within the organization that is qualified to audit the system and independent of
