Although the Basel Committee recently put out for comment proposals specifically addressing securitization, industry sources believe the final ruling is still a ways off, possibly another year or more.
"You could call it an interim paper, through which the Basel Committee is seeking further industry input on minimum capital requirements for securitizations," said George Miller, counsel for both the Bond Market Association and European Securitization Forum. "The input they receive presumably would be factored into a comprehensive re-proposal of the entire accord, that we expect to be issued for comment sometime early next year."
Still, sources said it has been hard to predict timing with the Basel Committee, because there are so many segments of the proposal at different stages of development. In June, a spokesman for the Committee announced that the final guidelines would be postponed past the initial 2001 year-end target. Since then, Basel has released several revised segments of the entire document, which had gone out for commentary in January 2001.
The Oct. 12 release primarily discusses the internal ratings approach to risk capitalization for securitization, and how the different risk tiers will be treated. The guidelines are out for comment until Nov. 15. The ESF intends to release a summary of its opinion to the public alongside its formal comments to Basel, Miller said.
U.S. still underway
On the U.S. front, the final recourse risk capitalization rules, as well as the guidelines for treatment of residual interests, are expected to be set into the federal register before Dec. 1 this year. There will be no more commentary periods.
At a session scheduled for Oct. 23, the Federal Deposit Insurance Corp. (FDIC) expects to discuss and distribute a near final draft of the proposals to the other agencies that make up the Federal Financial Institutions Examination Council (FFIEC).
The recourse provisions have been under development by the regulators for the past decade, according to David Katz, partner at Orrick, Herrington & Sutcliffe.
"This is a rule that has been kicking around for about eight to 10 years, and now, combined with the residual interest rule that was proposed in September 2000, this will put forth an official definition of recourse for the first time, which is substantial for securitization," Katz said.
Meanwhile, at a Senate Banking Committee hearing last week addressing the failure of Superior Bank, Office of Thrift Supervision (OTS) Director Ellen Seidman asked Congress "to grant the bank and thrift regulators more explicit power to resolve quickly disputes with accountants that could result in a drop in an institution's capital rating," according to a release from the OTS.
Superior Bank's failure was one of the first to bring to issue the role of the accounting firm in the residual valuation debacle. Trouble began when discrepancies in valuations arose between between Superior's accountant, Enrst & Young, and the regulators earlier this year (see ASR 6/4/01).