The United States Federal Deposit Insurance Corporation (FDIC) has recently adopted new safe harbour rules for securitizations completed by insured depository institutions which are subject to insolvency proceedings. In broad terms, if these rules are complied with the FDIC will not exercise its repudiation or avoidance powers with respect to the securitization. The FDIC is using its repudiation and avoidance powers as a basis for regulating the substantive terms and conditions of securitizations completed by insured depository institutions. If the securitization transaction complies with the FDIC rules, then it will not be challenged and assurances are available as to relatively uninterrupted cash flows.

While the primary protection for any securitization is characterization as a “true sale” so that the securitized assets are not subject to any insolvency proceedings affecting the Seller, there is additional comfort for investors and rating agencies in knowing that the transaction will not be challenged by FDIC because the securitization transaction complies with a set of safe harbour rules.

The legislation governing the Canada Deposit Insurance Corporation (CDIC) and other applicable Canadian legislation does not include any comparable safe harbour provisions to facilitate securitizations by Canadian depository institutions. Canadian transactions must rely solely on the true sale analysis. While the absence of Canadian safe harbour provisions has not precluded securitizations by depository institutions to date, it may be something to consider if for policy reasons the federal government wanted to encourage such transactions.