* FDIC extends safe harbor protection to Sept. 30
* Protection applies to securitized assets at failed banks
* Gives FDIC time to consider reforms to protection
By Karey Wutkowski
WASHINGTON, March 11 U.S. bank regulators
extended a policy on Thursday that protects securitized assets
in the event that a bank fails and is seized by regulators.
The Federal Deposit Insurance Corp said its board approved
an extension of the protection until Sept. 30, 2010, as it
tries to craft permanent rules designed to revive the
securitization market, but with stronger standards.
FDIC Chairman Sheila Bair said in a statement that the
extension will give the agency time to adopt final standards
and the industry time to transition to new standards.
"We will continue to seek broad agreement on securitization
reforms that can be implemented by all the regulatory
agencies," Bair said.
In December, the FDIC proposed a new treatment for
so-called "safe harbor" protection for securitized assets.
The new standards, if approved by the FDIC board, would
only protect securitized assets - such as those based on
mortgages and auto loans - from failed banks under certain
Those conditions include banks voluntarily retaining an
ownership interest in the loans they package into securities,
known as keeping "skin in the game."
Banks would also have to tighten underwriting standards and
disclose more details about the underlying assets, which could
include individual mortgages and other debt backing the bonds.
The proposal is designed to spur responsible
securitizations, by offering banks extra protection for the
Industry groups are concerned the proposal threatens to
undermine the securitization market and choke off an important
source of credit.
They have said that under the FDIC's proposal, investors
would bear the burden of the loss of the safe harbor if any of
the securitization preconditions are not satisfied.
Comptroller of the Currency John Dugan, who serves on the
FDIC board, has criticized the FDIC's proposal as aiming to
reform only a portion of the securitization market, potentially
creating an uneven playing field.
Securitizations fueled the recent financial crisis because
bad loans were packaged and then sliced and diced into
securities that widely spread risk through the financial
The market for securitizations froze during the crisis and
has only recently begun to thaw, largely due to government
(Reporting by Karey Wutkowski, editing by Leslie Gevirtz)