n September 27, the Board of Directors of the FDIC approved a final rule (the Rule) that governs the rights of the FDIC, as conservator or receiver of a failed insured depository institution (a Bank), over financial assets previously transferred by such Bank in connection with a securitization or a participation transaction (a Transaction).

The FDIC, as conservator or receiver of a Bank, has the statutory authority to repudiate contracts to which such Bank is a party, where it deems the contract to be burdensome and such repudiation would aid in the orderly administration of the Bank’s affairs. In 2000, the FDIC adopted a safe harbour, which provided that the FDIC would not try to reclaim loans transferred in connection with a Transaction so long as an accounting sale had occurred. However, following changes to the sale accounting rules by the Financial Accounting Standards Board in November 2009 (the Old Accounting Standards), most Transactions no longer met the off-balance sheet standards for sale accounting and as a result no longer qualified for the safe harbour. The Rule extends a transition period (the Transition Period), initially put in place in November 2009, which effectively grandfathers safe harbour treatment of all Transactions in process before the end of 2010, that, among other things comply with the Old Accounting Standards. In addition, the Rule imposes further conditions for a safe harbour for Transactions issued after the Transition Period.

The Rule provides protection for Transactions, entered into both before and after the Transition Period, where such Transactions comply with, among other things, increased disclosure requirements, documentation and serving standards, capital structure and credit support requirements and origination and risk retention requirements. In addition, the Rule conforms to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) and provides that, upon adoption of any risk retention regulations mandated by the Act, such regulations will exclusively govern in the Rule.

Although the Rule has no immediate application in Canada as the relevant Canadian legislation does not include a similar safe harbour, we will continue to monitor legislative changes in Canada for legislation which may facilitate securitizations by depository institutions.