Bair: FDIC Has New Rules for Securitization

WASHINGTON, DC-The securitization market for most financial paper is still dormant, but the Federal Deposition Insurance Corp. is gearing up for when institutions, originators and investors decide it is time to bring it back to life. At an FDIC board meeting on Thursday, Chairman Sheila Bair reportedly said FDIC has developed rule changes for banks that want to sell securities backed by loans and leases.

These new rules would be part of any extension of a “safe harbor” preventing assets bundled and resold by banks from being accessed by the agency should the institution fail, according to news accounts on Bair’s comments. FDIC did not return a call to GlobeSt.com in time for publication.

Bair’s overture was likely in response to new rules from the Financial Accounting Standard Board that will require originators to include both assets and liabilities of securitized debt on their balance sheet. Concern has been mounting that the FDIC would be able to tap the underlying securities for its deposit insurance fund in case of failure. FDIC’s proposed rules should be released for comment by the end of the year.

It is difficult to say how much of an impetus this rule change would have on jump-starting the securitization markets; activity has been frozen for close to two years for myriad complex reasons. Slowly regulators have been chipping away at these issues, addressing undue risk born by investors–and sloughed off by orginators–the limitations of the rating agencies and now the specter of regulatory overreach.