Sheila Bair, the chairman of the Federal Deposit Insurance Corp. (FDIC), said today that she expects the new rules on safe harbor protection for securitizations will be proposed in the next month or two.
In December 2009, the FDIC proposed more extensive amendments to the Safe Harbor to apply on a permanent basis. Having received extensive public comment on those proposals, the FDIC is extending the interim relief to provide more time to finalize the permanent changes.
The board of directors of the FDIC earlier this month approved an extension through September 30, 2010 of the FDIC’s Safe Harbor rule. Recent changes in U.S. accounting standards for securitizations created uncertainty about the continuing availability of the portion of the Safe Harbor relating to the FDIC’s repudiation power.
“That portion of the Safe Harbor, as originally adopted, was conditioned upon satisfaction by the subject securitization of the conditions for sale accounting,” explained partners at Mayer Brown in a special note on the safe harbor regulation. “Because the accounting changes make it difficult for securitizations to achieve sale accounting, this requirement threatened to make the repudiation portion of the Safe Harbor unavailable at least for transfers completed after the accounting changes took effect. “
In November 2009, the FDIC relaxed the accounting sale requirement for transactions closed through March 31 (including sales of financial assets after that date in revolving transactions closed on or before the deadline).
Under the interim relief, transactions need not achieve sale accounting, so long as they meet the conditions for sale accounting that applied prior to the recent changes (again, other than the legal isolation condition). The board’s most recent action extends this interim relief through Sept. 30.