Yesterday, the FDIC Board of Directors (Board) approved an advanced notice of proposed rulemaking (ANPR) for safe harbor protection of failed banks assets being transferred for securitization. Recent accounting rule changes would prevent most securitizations from meeting the off-balance sheet standards for sale treatment when they take effect on January 1, 2010. The FDIC adopted an interim final rule in November that continued the FDIC’s current practice of treating such assets as existing off a failed bank's balance sheet and exempt from seizure by the FDIC as conservator or receiver. The FDIC has extended the current safe harbor through March 31, 2010. The ANPR seeks public comment on the standards that should be applied to safe harbor treatment for transactions created after March 31, 2010. The FDIC's actions come after the U.S. House passed legislation that would require loan originators that package debts into securities retain 5% of the credit risk last week. The Senate is considering a similar measure.
In a separate vote, the Board also approved a final joint interagency rule that would permit banking organizations to phase-in the risk-based capital effects of implementation of the new accounting standards regarding the treatment of securitized assets. The final rule provides banks with an optional two-quarter implementation delay followed by an optional two-quarter partial implementation of the effect on risk-weighted assets resulting from implementation of the accounting rule changes. The final rule also permits banking organizations to include in Tier 2 capital, for the first two regulatory reporting periods following the implementation of the anew accounting requirements, any increase in the allowance for loan and lease losses (ALLL) attributable to assets consolidated under the new accounting rule, followed by a two-quarter phase-in of the regulatory restriction on the amount of such ALLL that may be included in Tier 2 capital. The transition relief applies only to risk-based capital requirements, not leverage capital requirements. Commenting on the need for this phase-in, FDIC Chairman Sheila Bair stated, "[w]e're still recovering from the damage these structures caused." She also added that the phase -in would take into account the "very fragile stage in our economic recovery."
Finally, the Board also nearly doubled the Corporate Operating Budget for 2010 to $4 billion, $2.5 billion of which will be used to fund receiverships. The budget for 2009 was $2.6 billion. To date, there have been 133 bank failures in the nation this year. Commenting on the adoption of the proposed budget, Bair stated, "[t]he 2010 budget is a prudent and measured response to current conditions in the banking industry.” She went on to state, "[i]t will ensure that we are prepared to handle an even-larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions." The Board also approved the authorization to hire an additional 1,643 employees, the majority of which will assist in bank closings and examinations.