Whitepaper: Role of Independent Ratings in the Screening of Commercial Banks by Federal Communications Commission
The Federal Communications Commission (FCC) uses the independent Weiss Bank Safety Ratings as its standard to help screen commercial banks qualified to finance broadband for rural America.
Other institutions as well as individual depositors also refer to the Weiss Bank Safety Ratings to help find institutions with the lowest risk of financial difficulties.
A critical factor they cite when deciding to use Weiss’ ratings is that Weiss is not paid by the banks for its ratings. Indeed, in its 53 years in business, Weiss has never accepted any compensation in any form from the 50,000 financial institutions and investment issuers that it rates.
Thus, Weiss is not subject to conflicts of interest and biases, such as those that became especially evident during the 2008 financial crisis, a period when many major banks failed or required a government bailout despite top grades from Moody’s, Standard & Poor’s and other Nationally Recognized Statistical Ratings Organizations (NRSROs).
In contrast, among banks that failed during and since the 2008 financial crisis, 97.4 percent received a Weiss Bank Safety Rating of D+ or lower (defined by the GAO as in a “vulnerable” category) well before they failed. Weiss also warned in advance of nearly all major 2008 failures in the brokerage industry and among government-sponsored agencies, while accurately identifying the truly safe institutions.
However, earlier this year, responding to appeals by the Bank Policy Institute (BPI) and others, the FCC decided to grant a six-month waiver to banks already participating in rural broadband programs, even if their current Weiss Bank Safety Rating is below the minimum standard previously established by the FCC (B minus) for U.S. banks. This waiver does not apply to institutions seeking to participate in the program going forward. However, it raises serious questions about possible conflicts of interest between the Bank Policy Institute and the public’s best interests.
It is also unfortunate that, in its effort to persuade the FCC to cease using the Weiss Safety Ratings, the BPI refers to information and opinion about Weiss that is untruthful or misleading.
