The Federal Deposit Insurance Corp. (FDIC) gave banks at least six months to raise capital to back the securities financial institutions will be adding to their balance sheets, according to a report from Bloomberg.
The FDIC was set to decide today about two securitization-related matters. The first is a rule that would put capital levels that banks have to hold in line with a June ruling by the Financial Accounting Standards Board (FASB). FASB's new ruling requires these financial institutions to bring back on their balance sheets certain off-balance sheet holdings, which include securitizations.
The government agency is also ruling on whether to restrict its safe harbor on securitized products that are linked to institutions that failed.
The Bloomberg report quoted FDIC Chairman Sheila Bair as saying the phase-in provided by the FDIC is a recognition of the “very fragile stage in our economic recovery,” she stated at a Washington board meeting.
Executives from Citigroup, JPMorgan, Bank of America, Wells Fargo, Capital One Financial Corp. and the American Securitization Forum (ASF) met FDIC officials on Dec. 2 to discuss the capital requirements related to the FASB measure, according to the Bloomberg report.
ASF officials proposed to the FDIC that the transition period should extend beyond 2010 to a point in the economy where there is less unemployment and where issuers are less capital-restrained to grow their balance sheet and offer credit.
Meanwhile, Bloomberg mentioned that Citigroup suggested three years to offset assets and liabilities brought onto balance sheets in a letter to regulators dated Oct. 15. Citi's Chief Financial Officer John Gerspach wrote in the letter that requiring banks to assume the risk-based capital effects right away or even after one year is a "severe penalty."
The FDIC also agreed to nearly double the amount of capital in its 2010 budget used for bank failures and plans to add over 1,600 staffers.
It released a $4 billion operating budget, rising from $2.6 billion in 2009. The amount of $2.5 billion has been set aside to fund the takeover of failed banks.
Bair said that this willl ensure that the FDIC is prepared to handle an even larger number of bank failures next year, if this becomes necessary. She added that the $2.5 billion allotment will also help in providing regulatory oversight for an even larger number of troubled institutions.
Meanwhile, the added staff members will be necessary to help the agency unwind failed banks. The FDIC said that many of the new staffers are expected to be added permanently at a later date.