Time and Tide: Securities Due Diligence
The tide went out and Congress saw who was swimming naked: some credit unions who relied too much (or only) on credit ratings when evaluating the creditworthiness of securities for their investment portfolios. So, in Section 939A of the Dodd-Frank Act, Lifeguard Uncle Sam ordered credit unions to step into conservative bathing suits before wading back into the fixed-income sea.
Section 939A obligates credit unions to change the way many have long conducted creditworthiness checks when buying securities and to perform ongoing creditworthiness checks for existing securities in their. It effectively prohibits credit unions from relying only on ratings agencies when determining the creditworthiness of securities, and directed federal agencies like the NCUA to draft new creditworthiness rules to replace exclusive reliance on rating agencies.