The Federal Deposit Insurance Corp. (FDIC) has issued a proposed rule on securitization standards that include a 5% risk retention requirement on newly issued MBS by depositories.
The new standards are part of the agency's revision of "safe harbor" policies with regard to receivership assets. The current safe harbor assures MBS investors that FDIC will not seize the underlying mortgages of MBS sold by a bank that later fails.
The regulator is making the proposal because of recent changes in accounting rules and wants to set a securitization requirement as a way to revive the private-label MBS market.
FDIC wants to move quickly on the new policies. Chairman Sheila Bair said securitization standards are compatible with current House and Senate legislative efforts.
However, at an FDIC board meeting Tuesday, Comptroller of the Currency John Dugan raised objections and is forcing FDIC to move more deliberately. "A rigid minimum retention requirement risks closing down securitization markets," he said.
Meanwhile, Tom Deutsch, deputy executive director of the American Securitization Forum (ASF), made the following statement on the bank regulatory capital rules related to implementation of FAS 166/167 and the proposed rules to satisfy an FDIC legal isolation safe harbor for securitization transactions/
On the regulatory capital rules in relation to FAS 166/167, Deutsch said: “The ASF supports change to the risk-based capital rules that appropriately reflect the risks that different types of securitizations present to insured depositary institutions. However, we are concerned that the bank regulatory agencies have chosen to treat all securitizations with a one-size-fits-all approach, regardless of the actual risks involved. The risk-based capital regime should reflect differences in credit risk among these transactions, thereby promoting effective risk management and preserving the ability to fund consumer and business credit demand via securitization. We look forward to continuing to work with bank regulators to refine the capital rules going forward to achieve those goals.”
Meanwhile, Deutsch also commented on the FDIC legal isolation safe harbor. “ASF firmly supports legislative and regulatory change of existing rules governing securitization transactions and looks forward to providing detailed comments to the extensive set of questions that the FDIC has published today," he said. "We share the FDIC’s goal of returning sustainable securitization activity to help Americans obtain the consumer and business credit necessary for economic recovery and job creation. However, we believe a number of the proposals presented today may inadvertently slow the restart of the securitization markets at a time when American consumers and small- and medium-sized business most need the credit availability that these critical markets provide.”