The board of directors of the Federal Deposit Insurance Corporation (FDIC) approved an Advanced Notice of Proposed Rulemaking (ANPR) Regarding Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution In Connection With a Securitization or Participation.
"Today's ANPR will move the discussion forward to achieving a broad agreement on securitization reforms that can be implemented by all the regulatory agencies," FDIC Chairman Sheila Bair said. "As deposit insurer and receiver for failed insured banks and thrifts, the FDIC has a unique responsibility to control the risks to the Deposit Insurance Fund [(DIF)]. "
She also said that the misalignment of incentives in securitizations has contributed to huge losses to insured institutions, to the DIF, and to the country's financial system.
"Fostering a sustainable securitization market that emphasizes transparency, loan quality, risk retention, and appropriate incentives and authorities for restructuring troubled loans will restore investor confidence and help banks diversify their funding sources while managing interest rate risk for longer dated assets," Bair said, adding that the sample regulatory text for conditions to a FDIC safe harbor would go far toward correcting securitization's weaknesses that contributed to the crisis. It is also very consistent with the direction of legislation in the House and Senate.
Since 2000 and the adoption of 12 C.F.R. Part 360.6, the FDIC has provided important safe harbor protections to securitizations by stating that when a bank failure happens, the FDIC would not try to reclaim loans transferred into a securitization for as long as an accounting sale had occurred.
However, since the Financial Accounting Standards Board (FASB) changed FAS 166 and 167 last June, most securitizations will no longer meet the off balance sheet standards for sale treatment when they take effect on January, 1 2010.
As a result of the FASB changes, on Nov. 12, the FDIC Board approved a transitional safe harbor that permanently grandfathered securitization or participations in process through March 31, 2010. The noitce will seek public comment on what standards should be applied to safe harbor treatment for transactions created after March 31.
The FDIC is seeking comment for 45 days on a range of issues that are implicated by proposed standards for a safe harbor for participations and securitizations issued after such date.
To offer a basis for consideration of the questions and the relationship of different conditions for such a safe harbor, the notice attaches as an addendum a draft of sample regulatory text that could be considered to set specific standards for such a safe harbor.
This draft of regulatory text should be considered as an example of regulatory text, and not a proposal. The Board’s approval of the notice should not be seen as signifying adoption or recommendation of the sample regulatory text, although the text does offer context for response to the questions, the FDIC said.