Today, the FDIC Board held a meeting to consider two proposals regarding so-called bank “funeral plans” and risk retention by issuers of asset-backed securities.
The first measure, which passed unanimously, would require U.S. banks with greater than $10 billion in assets that were part of a bank holding company with greater than $100 billion in assets to submit “funeral plans” outlining the most efficient means for winding down the institution. FDIC Chairman Sheila Bair emphasized that the plans should describe how the depository institution could be separated from the holding company. “They will need to demonstrate to us that the depository can be separated. It is a very real problem as we saw during the crisis. For instance ... by one account we have had one holding company with 3,000 different separate entities,” she said. According to FDIC staff, the Proposed Rule would apply to approximately 40 institutions representing almost half of the FDIC’s insurance risk. The Proposed Rule will be open for public comment for 60 days.
The second measure was advanced by a vote of 3-2 and will be released as a Notice of Proposed Rulemaking. If adopted, the rule would require originators of securitized loans to retain 5% of the credit risk of such loans. The financial regulatory reform bill passed by the House in December contains a similar provision, and Senate is also considering a similar measure in its pending financial regulatory reform legislation.
The pending legislation in Congress was one reason that two members of the Board voted against the proposal. Comptroller of the Currency John Dugan said, “Given how close Congress is to addressing this issue, I think the FDIC should wait to see what Congress directs the agencies to do before acting unilaterally.” Chairman Blair said that initiative would complement existing regulatory and legislative efforts.
The Proposed Rule would also require enhanced disclosures by issuers of residential mortgage backed securities, and require deferred compensation for rating agencies. The Proposed Rule will be open for comment for 45 days.