Moody’s Investors Service has not changed the ratings of Standard Chartered Bank (A1, B-/a1, stable) or Standard Chartered following allegations of irregularities in its US dollar (USD) clearing by a New York State banking regulator.
However, Moody’s said that it will monitor:
- The actions of the regulators supervising the Standard Chartered group.
- The extent of any related developments with regards to the group’s liquidity or franchise.
Moody’s notes that this case again highlights the difficulty of large banks in assuring tight controls within their wholesale banking operations.
The New York State Department of Financial Services (DFS), which regulates Standard Chartered’s branch in the state of New York, has alleged that Standard Chartered systematically sought to evade regulatory requirements relating to USD clearing transactions for Iranian clients from 2001-07. It has required Standard Chartered to explain its conduct at a meeting on 15 August 2012.
The DFS has oversight of Standard Chartered’s New York branch, whereas the Federal Reserve has oversight of Standard Chartered on a national level. The DFS has threatened to curtail Standard Chartered’s USD clearing activities and potentially withdraw its New York branch license.
Standard Chartered has strongly disputed the DFS’ presentation of events. It has also pointed out that other regulatory bodies with oversight of Standard Chartered have not made any public comment together with the DFS.
Moody’s said that it would view as credit negative any limitation on Standard Chartered’s USD clearing activities. This business directly supports its global commercial and trade-finance franchise and the group places a heavy strategic emphasis on transaction banking and cash management services.
It added that the potential for closure of Standard Chartered’s New York branch would have broader implications, in particular in terms of the firm’s reputation.
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