The Federal Deposit Insurance Corporation, in a notice entitled, "FDIC Board Approves Advance Notice of Proposed Rulemaking Regarding Safe Harbor Protection for Securitizations," said yesterday, "The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved an Advance Notice of Proposed Rulemaking (ANPR) Regarding Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation.... [T]he FDIC has provided important safe harbor protections to securitizations by confirming that in the event of a bank failure, the FDIC would not try to reclaim loans transferred into a securitization so long as an accounting sale had occurred. However, with the Financial Accounting Standards Board June 2009 changes in FAS 166 and 167, most securitizations will no longer meet the off-balance sheet standards for sale treatment when they take effect on January 1, 2010."
The release continued, "On November 12, the FDIC Board approved a transitional safe harbor that permanently grandfathered securitization or participations in process through March 31st, 2010. The ANPR will seek public comment on what standards should be applied to safe harbor treatment for transactions created after March 31st. FDIC Chairman Bair commented, "Today's ANPR will move the discussion forward to achieving a broad agreement on securitization reforms that can be implemented by all the regulatory agencies. As deposit insurer and receiver for failed insured banks and thrifts, the FDIC has a unique responsibility to control the risks to the Deposit Insurance Fund. The misalignment of incentives in securitizations has contributed to massive losses to insured institutions, to the DIF, and to our financial system."
Tom Deutsch of the American Securitization Forum (ASF), commented on "Regulatory Capital Rules re FAS 166/167, "The ASF supports change to the risk-based capital rules that appropriately reflect the risks that different types of securitizations present to insured depositary institutions. However, we are concerned that the bank regulatory agencies have chosen to treat all securitizations with a one-size-fits-all approach, regardless of the actual risks involved. The risk-based capital regime should reflect differences in credit risk among these transactions, thereby promoting effective risk management and preserving the ability to fund consumer and business credit demand via securitization. We look forward to continuing to work with bank regulators to refine the capital rules going forward to achieve those goals."
Also, today the FDIC released "FDIC Board Finalizes Regulatory Capital Rule for Statements of Financial Accounting Standards", which says, "The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today finalized the regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these new accounting standards will make substantive changes to how banks account for securitized assets that are currently excluded from their balance sheets.... The rule provides temporary relief from risk-based measures. Banks will be required to rebuild capital and repair balance sheets to accommodate the new accounting standards by the middle of 2011."
While asset totals have stabilized in recent weeks (see the Federal Reserve's weekly "Commercial Paper Outstanding" series), both commercial paper, and asset-backed commercial paper totals have dropped sharply over the past two years. ABCP now totals $492.9 billion, representing 40.75% of the $1.2095 trillion in commericial paper outstanding. Money market funds own approximately $522 billion of CP, or 43.6% of all CP, and about $212.7 billion in ABCP according to recent ICI statistics and Crane Data estimates. CP, including ABCP, has fallen from the largest segment of money fund portfolios prior to the onset of the subprime liquidity crisis in August 2007, to the 4th largest sector currently.
See also, an update on ABCP issues in Canada in The Globe and Mail's "On the road to ABCP reform", which says, "More than two years after the asset-backed commercial paper train crashed, Canada's market cops are poised to take banks to the woodshed for their role in the country's worst-ever investment wreck."
