Ratings firm says regulators give pass to big banks with weak capital ratios

Shades of 2009-2010 — when there were 297 bank failures nationwide — are looming in an unusual battle between the Federal Communications Commission and one of the most recognized bank rating agencies. 

The FCC isn’t a banking regulator, per se, but it dipped into the field late last year when it eliminated the use of Weiss Ratings as the standard for U.S. banks to be considered “acceptable” to the commission for purposes of issuing qualifying program letters of credit. The rule had previously stated banks needed a Weiss credit safety rating of B- or better to participate in FCC programs like the Rural Digital Opportunity Fund. Palm Beach Gardens-based Weiss was founded in 1971, and bills itself as the “nation's only independent bank safety rating agency.”

In a joint letter sent last summer to the FCC, the Independent Community Bankers of America, along with some 70 state banking associations, wrote, in part, that “Weiss was ill-suited to rating bank safety because its ratings were not sufficiently rigorous or transparent and its impartiality was in question.” The ICBA noted in its letter that, for example, “an unregulated cryptocurrency received an A- rating from Weiss while thousands of regulated financial institutions had a safety rating lower than B-.”

The FCC’s new standard is that a bank is acceptable in the programs if it’s a “U.S. bank insured by FDIC that meets the criteria to be considered ‘well capitalized’ as determined by the FDIC, OCC, and Federal Reserve, according to an FCC fact sheet issued in November. 

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Weiss, in a May 30 letter sent to FCC Secretary Marlene Dortch, signed by company founder Martin Weiss, disputes the commission’s decision and some comments in its fact sheet, saying it “never accepts any form of payment for its ratings from the rated institutions. Nor has the FCC ever paid Weiss for the use of its ratings or informed Weiss that it was using them.” 

Weiss alleges the FCC’s decision to accept any bank deemed "well capitalized" by federal banking regulators came “under pressure from some of the nation's banking associations.” The decision has, in turn, “radically loosened its screening standards,” for FCC programs, Weiss contends. 

Weiss says under the FCC’s new standard, there are 649 banks that it would give a D+ or lower. Others would be a C-. "The problem starts with the banking regulators — the Fed, FDIC and OCC,” Martin Weiss says in a statement accompanying the letter. “Their bar is so low that they include some of the nation's weakest banks in their 'well capitalized' category.’"

Weiss says under regulators terminology and formulas, 99.4% of the nation's 4,484 banks are deemed "well capitalized.” That leaves 27 in the "undercapitalized” category. “This flies in the face of a key measure of bank capital,” Weiss says, pointing to common equity Tier 1 Risk-Based Capital Ratio, which he adds has been going mostly down since 2019.