The Federal Deposit Insurance Corp. (FDIC) will not exercise its authority under the Dodd-Frank Act to reclaim or recover assets transferred by a financial company into a securitization, said FDIC acting FDIC General Counsel, Michael Krimminger in a letter to the industry.
Krimminger said that the FDIC will apply sale principles under bankruptcy law instead of determinations under the FDIC’s repudiation authority to decide how it will treat securitizations by a covered financial firm placed in a receivership. The interpretation will remain effective for securitizations issued until at least June 30.
The letter will calm the numerous concerns in the ABS secondary market regarding the FDIC's liquidation authority under Dodd-Frank. The American Securitization Forum had requested the FDIC to provide such a letter as quickly as possible.
“We appreciate the extremely quick response by the FDIC clarifying that the FDIC would not attempt to seize assets that were previously legally sold into a securitization," said executive director Tom Deutsch in a press statement. "By moving quickly, the FDIC has enabled the non-bank securitization issuance for credit cards and auto loans, among other assets, to continue functioning, which facilitates much needed credit to consumers and the American economy.”
According to an alert from the law firm Dechert, this threa to the operation of the securitization market for nonbank financial firms such as bank holding companies came from uncertainty as to whether any particular covered financial company might be placed in a Dodd–Frank Act Title II receivership. This is because it was determined, among other things, that the company’s failure and resolution under otherwise applicable law would have serious adverse effects on the country's financial stability.
Thus, almost any securitization involving such firms could, at some point, become subject to Title II receivership rules. If an issue arises as to whether and how the FDIC might apply its repudiation authority, and interpret the requirement that a party obtain FDIC consent to exercise rights in terms of the receivership property in the 90-day period after the agency’s appointment as receiver, Dechert said.