Thursday, November 12, 2009

FDIC saves securitisation

Posted on FT's Alphaville by Tracy Alloway:

Remember FAS 167? The new accounting standard will eliminate qualified special-purpose entities (QSPEs) and lead to banks putting billions worth of securitised assets — mostly credit card trusts — back onto their balance sheets from 2010.

The proposed rule also caused a bit of consternation among ratings agencies and analysts - with many concerned that the new requirements would mean a loss of so-called ’safe harbour’ status which to date had protected off-balance sheet securitisations. The concern was that the Federal Deposit Insurance Corp (FDIC), the organisation responsible for insuring US bank deposits, could start seizing the securitisations in the event of a bank’s bankruptcy.

But, it looks like on Thursday the FDIC has decided not to go down that route:

NEW YORK -(Dow Jones)- The U.S. Federal Deposit Insurance Corp. on Thursday extended a rule to help the securitization market, roiled by new accounting regulations.

The banking regulator’s board decided that existing securities backed by consumer loans, mainly credit card debt, as well as new bonds issued before March 31, 2010, won’t lose their so-called “safe harbor” treatment. The FDIC will, in effect, not be able to raid the assets backing these securities even if the lending institution files for bankruptcy.

New accounting rules issued by the Financial Accounting Standards Board, or FASB, due to go into effect in companies' next fiscal year, would bring these securities on-balance-sheet, such that if the bank went into receivership, the FDIC could have had access to the assets backing the bonds.

Because of confusion over these accounting rules, issuance of credit card bonds plummeted in October. No new credit-card-backed bonds have emerged in the market since Bank of America issued a $300 million deal on Oct. 2, according to the trade publication Asset-Backed Alert.

No credit-card securities eligible for funding under the Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF, have surfaced since September.

Year-to-date issuance of securities made up of credit-card loans has fallen 41% to $32.3 billion from $55.2 billion a year ago, according to a Deutsche Bank note published Nov. 5.

On Thursday, The FDIC board decided to create a "transitional safe harbor," but said there would be further discussion on this complex matter and it would get further comments from industry participants before the end of the year before it makes another decision.

Saving securitisation via safe harbour status. Try saying that 10 times fast.

Word to the wise though, the FDIC jury is still apparently out on bonds issued after March 31 next year:

The FDIC will issue further guidance on new rules for bonds issued after March 31, 2010 on Dec. 15.

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