An economist at the Federal Deposit Insurance Corp. released a study on the evolution of the banking industry post-WWII acknowledging the significant role securitization and the credit markets have played in dramatically reshaping commercial banking since the mid-80s.
The report's author, Katherine Samolyk, a senior financial economist at FDIC, discusses the significant decline in domestic nonfinancial lending funded by bank borrowing (through the use of deposits). "Specifically, asset securitization has allowed loans that used to be funded by traditional intermediaries, including banks, to be funded in securities markets," Samolyk wrote in the report.
However, the FDIC estimates that the share of nonfinancial-sector business borrowing that commercial banks fund on their balance sheets has not declined notably during the past 50 years. Rather, there has been a shift in how banks lend from shorter-term lending not secured by real estate to loans collateralized by business real estate.
In retail lending, however, securitization has become the predominant funding source of home mortgages and consumer loans, and it has reduced the extent to which these loans are directly funded by commercial banks and savings institutions.
Interim final ruling extended
Separately, last week the FDIC moved to extend the temporary measure put in place last year concerning FIN 46-related conduit consolidation. The FDIC and the other federal regulators allow banks to exclude ABCP conduit assets, if they have been consolidated in compliance with FIN 46, from the regulatory capital adequacy analysis. However, the measure proposes rules on holding capital against eligible liquidity lines from banks to conduits. Regulators are working toward a permanent rule to address capital requirements. The interim rule, as proposed by the FDIC, would be in effect through July 1.