Bank Groups Continue to Battle FCC Ratings Rule

WASHINGTON, May 23, 2024 – The banking industry is trying to scuttle a Federal Communications Commission financial rule that can jeopardize the ability of broadband Internet Service Providers to access federal deployment grants won at auction.

The issue has its weedy complexities, but it has risen in importance as a regulatory matter at the FCC because the dispute involves access to capital needed to deploy broadband networks in rural America and help close the digital divide.

The latest to lodge an objection with the FCC is the Wisconsin Bankers Association, which has said the FCC’s financial rule “unjustly excludes many banks, including community banks in rural communities across Wisconsin,” that won’t be able to help finance broadband projects in unserved and underserved locations.

At issue is an FCC rule that applies to ISPs that have been awarded grants under the agency’s multibillion dollar Rural Digital Opportunity Fund. Under the rule, an ISP needs to obtain a letter of credit from a bank with a Weiss rating of B minus or better. The ISP will lose RDOF funding if the bank’s Weiss rating dips below B minus, forcing the ISP to find a new bank with an eligible Weiss rating.

In Wisconsin, the impact of relying on Weiss ratings has been significant.

“We have learned that for reasons that are not transparent, the Weiss organization downgraded late last year many financially sound Wisconsin banks to a rating below [B minus], leading telecommunications providers to contact their banks questioning the bank’s ability to continue to provide these letters of credit,” WBA CEO Rose Oswald Poels said in a May 20 letter to the FCC. "Inexplicably, there are currently 108 out of 179 Wisconsin banks with a Weiss safety rating lower than [B minus].”

Aware the problem wasn’t contained to Wisconsin, the FCC in March suspended the Weiss ratings rule for one year, shielding ISPs from losing RDOF funding because Weiss downgraded their LOC-holding banks. The FCC, however, said new LOCs had to come from banks with a B minus or better ranking.

The FCC has the issue teed up for review at its June 6 meeting in Washington.

“WBA respectfully continues to urge the FCC to remove the safety rating requirement in its entirety.” Poels said, adding the banks are “robustly” regulated for safety and soundness by the FDIC and the Federal Reserve.

Along with the Bank Policy Institute - a trade association for large banks like J.P. Morgan, Bank of America, and Wells Fargo - the WBA has questioned Weiss’ credentials to rate banks.

“The Weiss rating organization is not one that is known by WBA and its members. Indeed … WBA and its affected members were unaware of the Weiss rating organization and to this date have had no communication from them,” Poels said in her letter.

In the past, Gavin Magor, Director of Research & Ratings at Weiss Ratings, has vigorously defended his firm’s integrity, saying the company started rating banks in 1973 and was not paid to generate ratings by the banks being rated, a reference to a Wall Street conflict that some think contributed to the 2008 financial crisis.