The FDIC has given banks a temporary reprieve from the impact on their securitizations of the recent changes in GAAP, until March 31, 2010. By then, the FDIC has promised new securitization rules.
The FDIC has stated (pdf) that it will issue new rules for bank securitizations in December 2009, which rules will likely impose mandatory structural changes to bank securitizations including credit risk retention, increased disclosures to investors, and more flexibility for servicers of securitized debt. There will be a comment period before the revised rules go into effect, during which time interested parties will be invited to provide comments and feedback to the FDIC on the proposals.
The FDIC’s action under the Interim Rule (Fed. Reg. Vol. 74. No. 220, Nov. 17, 2209) extends the current safe harbor for bank securitizations contained in the “Securitization Rule” (12 CFR 360.0) until March 31, 2010, thereby giving banks the ability to securitize without considering whether the recent GAAP accounting changes in FAS 166 and 167 (the “New GAAP Rules”) affect their securitizations during the interim period. We’ve prepared a separate report on the content of these recent changes to GAAP.
Under the “Securitization Rule”, the FDIC clarified its authority as receiver or conservator to reclaim as property of a bank any financial assets transferred by the bank in connection with a securitization did not apply to a sale which met all conditions for sale accounting treatment under GAAP. The New GAAP Rules may affect whether an issuing entity has to be consolidated on the bank’s balance sheet for financial reporting purposes. Given the changes in the accounting treatment, securitizations would not likely meet all conditions for sale accounting treatment. As a result, the safe harbor provision of the Securitization Rule may not apply to the transfer.
The Interim Rule provides that for securitizations and participations for which transfers were made or interests were issued before March 31, 2010, the FDIC will not exercise its statutory authority and reclaim as property of the institution any transferred financial assets notwithstanding that such transfer does not satisfy all conditions for sale accounting treatment under the New GAAP Rules for reporting periods after November 15, 2009, if such transfer satisfied the conditions for sale accounting treatment set forth by GAAP in effect for reporting periods before November 15, 2009. The FDIC has requested comments on all aspects of the Interim Rule, which must be received by January 4, 2010.
Of course, not all issuers are banks. Non-depository institutions will continue to have to deal with the impact of the GAAP changes on their securitization structures.