Agencies look for credit rating alternatives

WASHINGTON (Reuters) - Banking regulators expect to release proposals for replacing the work of credit rating agencies in their regulations later this year when comprehensive proposals on tougher capital standards are unveiled, the Federal Reserve said on Monday.

Credit rating agencies, such as Moody's Corp <MCO.N> and McGraw-Hill Cos' <MHP.N> Standard & Poor's, have been criticized for fueling the 2007-2009 financial crisis by assigning gold-plated ratings to securities that proved to be far more risky than advertised.

In response, the 2010 Dodd-Frank financial oversight law requires regulators to strip from their regulations the reliance on credit rating agencies' work to determine such things as capital requirements for banks based on the riskiness of their assets.

In a report to Congress released on Monday, the Fed said that banking agencies are still working to find alternatives to the credit raters' work, a daunting task that has proven to be difficult for banking agencies.

The Fed said regulators expect to propose alternatives later this year when they unveil rules for implementing tougher capital requirements for banks required by Dodd-Frank and the recent international agreement known as Basel III.

(Reporting by Dave Clarke; editing by Matthew Lewis)