In an open meeting today, the Federal Deposit Insurance Corporation (FDIC) Board of Directors approved a final rule to extend through December 31, 2010, the 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.Also today, the FDIC Board of Directors approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rule would provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012. The FDIC Board postponed approval of proposed rules relating to the Dodd-Frank Act'snew orderly resolution scheme, to allow time for feedback from the Financial Stability Oversight Council, which holds its first meeting on Friday.
The securitization safe harbor provides that securitizations or participations in process before the end of 2010 are permanently grandfathered under the existing terms of treatment by FDIC as conservator or receiver of financial assets transferred in connection with such transactions. The FDIC had previously extended the protections twice, with the current extension scheduled to expire on September 30, 2010.
In addition to extending the securitization safe harbor, the final securitization rule “defines the conditions for safe harbor protection for securitizations and participations for which transfers of financial assets are made after the transition period and clarifies the application of the safe harbor to transactions that comply with the new accounting standards for off balance sheet treatment as well as those that do not comply with those accounting standards.”
Chairman Sheila Bair stated that in the final rule a “balance has been struck between protecting the FDIC's Deposit Insurance Fund and allowing participants to adjust to a safer, more transparent securitization market.” Chairman Bair also noted that “the rule is fully consistent with the clear mandate of the Dodd-Frank Act to apply a 5% risk retention requirement unless sufficiently strong underwriting standards are in place to counter incentives for lax lending created by the originate to distribute model.”
The proposed rule would provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012. This proposed rule would be similar to the FDIC’s own program instituted in October of 2008 providing unlimited protection for noninterest-bearing transaction accounts at participating banks. In announcing the proposed rule, Chairman Bair stated the provision of Dodd-Frank “is different from the FDIC's program but continues the purpose of that program as we emerge from the economic crisis."