It appears that Federal Deposit Insurance Corp. Chairman Donna Tanoue is on her way out, as President-elect Bush brings in his new brigade.
In the securitization world, Tanoue is best known for her position against subprime lending - which was never quite defined, but always somewhat negative - and her proposal for residual-valuation reform, a source said.
According to American Banker, a sister publication of ASR, Texas community banker Don Powell is Bush's first choice for Tanoue's spot.
"The Texas crowd is usually deregulatory," said a securitization consultant close to regulatory developments. "They usually are more concerned with getting regulators off their backs. In terms of residuals, I would expect him do absolutely nothing."
The consultant anticipates that the push toward high capital weighting against residuals will slow significantly.
"The other regulators are not supporting it, they never did," the consultant said. "It was her initiative, and without her to push it, it's not going to go very far."
However, a Washington attorney who works in securitization said, "From what I understand, from talking to those guys, they feel that this is a very important issue, and that the banks have an exposure here that the regulators need to address."
Tanoue's position with regard to subprime lending and residual valuation stems from a few recent bank failures, most notably First National Bank of Keystone, where a combination of inaccurate residual valuations and out-n-out fraud will cost the FDIC several hundred million dollars.
"The regulators look at subprime as high risk, so they would be happy if all banks exited the business," the attorney said. "They can't say that politically, because if they damned subprime they'd have significant [Community Reinvestment Act] problems. They couldn't come up with a definition for subprime that didn't have political implications, and that's a big problem for them."
Securitization of subprime loans tends to lead to a large volume of residual interest for the issuer, the attorney said. The regulators have been moving toward a system of risk-based capital weightings that would make it very expensive for small banks to securitize subprime loans.
This continues to draw controversy (see Whispers, ASR 1/08/01).
Meanwhile, the latest revision of the Bank of International Settlement Proposal (Basel), which addresses risk-based capital weighting in a similar way, will be released on Jan. 16, thereby entering into another 90-day commentary period.