On September 27, 2000 the Federal Reserve, Comptroller of the Currency, Office of Thrift Supervision, and the Federal Deposit Insurance Corporation published a joint notice of proposed rulemaking that announced their intention to amend the capital rules applicable to banks retaining interests in their own securitizations. The proposal outlines an unusually aggressive regulatory approach to securitization that would make all forms of securitization less attractive for most banks, and the retention of large interests in securitizations unattractive for all banks.
The proposal contains a provision requiring dollar-for-dollar capital support for retained interests in a bank's own securitizations. The existing capital rule for retained interests in securitizations calls for dollar for dollar capital up to a maximum of 8 percent of the securitization supported by the retained interest. The new proposal calls for dollar for dollar capital support with no maximum. Curiously, a bank retaining a large interest in its own securitization would have to have more capital than a bank that elects to hold the same assets on its books (I am not making this up). The proposal goes on to say that the aggregate of all retained interests in securitizations, combined with non-mortgage servicing rights and purchased credit card relationships, may not exceed 25 percent of Tier 1 capital.