Standard & Poor's examined the implications of the Federal Deposit Insurance Corp.'s (FDIC) recently approved changes to the Safe Habor rule. The rule refers to the applicable legal regime to financial asset tranfers by banks for securitization purposes if the financial institution becomes insolvent.
Today S&P published a report titled Ratings Implications Of [FDIC’s] Final Rule Regarding Safe Harbor Protection For Securitizations. The report focused on the potential outcome under this new legal regime in terms of ratings given a bank's insolvency if it has securitized assets.
"The final rule imposes a number of conditions to the new Safe Harbor's applicability," S&P credit analyst Felix Herrera said.
The rating agency's full commentary addresses the ratings implications of the new rule for: securitizations issued before Dec. 31; transfers that are sales for Generally Accepted Accounting Principles (GAAP) purposes and meet the new conditions under the final rule; transfers that are sales for GAAP purposes but do not meet the conditions under the final rule; transfers that are not sales for GAAP purposes but meet the new conditions under the final rule; and transfers that are not sales for GAAP purposes and do not meet the conditions under the final rule.
The changes to the legal regime were triggered by accounting changes adopted in June 2009. These limited the applicability of the FDIC's rule called Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation adopted in 2000 or, in short, the 2000 Safe Harbor.
This version of the Safe Harbor confirmed that, under certain conditions such as the treatment of the transfer as a sale for accounting purposes, the FDIC — acting in the capacity of a conservator or receiver of an insolvent financial institution — would treat such transfers as true sales.
In November 2009, the FDIC adopted an interim final rule amending the 2000 Safe Harbor. Subsequently, on May 11, the FDIC approved a Notice of Proposed Rulemaking (NPR) proposing to replace the amended 2000 Safe Harbor.
On Sept. 27, the FDIC approved its final rule which, while following the same general principles as the proposed rule, answers some of the questions that S&P thinks were raised by the NPR and viewed as potential obstacles to the rating of bank-originated securitizations independently from the rating of the bank under the new Safe Harbor.