Acting Comptroller of the Currency John Walsh in remarks prepared for delivery at ASF 2012 said it was hard to imagine full recovery of the financial system without the liquidity and funding avenues provided by a well functioning securitization market.
In his address, Walsh highlighted the importance of securitization for the recovery of the housing market and by extension the recovery of the economy. But Walsh said there were still several moving pieces to rulemaking provisons that will impact how the market will work going forward.
"In our rulemaking, the goal of the agencies must be to strike a balance that meets the objectives of Dodd-Frank, while enabling financial firms to continue conducting business in a manner that is safe, sound, and profitable; ensuring appropriate monitoring and management of risk; promoting healthy and liquid markets; and supporting a strong and growing economy," he said in the prepared comment.
Walsh discussed the greatly debated topic of the Qualified Residential Mortgage, or QRM, which are securitizations that would be exempt from risk retention. Some the current discussion, Walsh said, was over whether QRM should be narrow to recognize the unusual nature of a total exemption from the statute’s risk retention premise or whether it should be broader to recognize that a range of mortgage types could demonstrate acceptably low default rates.
The role of credit ratings is another challenging area for rulemakers, particularly because of the role such ratings play in the Basel capital framework, and in part because so many small banks lack the capacity to do the kind of independent analysis that would be necessary without some degree of reference to credit ratings.
During the question-and-answer portion, Walsh said that the OCC's goal is to release a notice of proposed rulemaking for Basel III sometime in 1Q12.
"We were unable to persuade Congress to ease Dodd-Frank’s total prohibition on references to credit ratings in regulations, but even without the ban, we would have been moving in this direction," he said.
Walsh noted that for now rulemakers did not have a definite timeframe on when issues like QRM would be resolved.