(Adds comments from SIFMA, CMSA trade groups, byline)
By Nancy Leinfuss
NEW YORK Feb 22 A proposal by the Federal
Deposit Insurance Corp. to change rules designed to offer
assurances to investors in securitized assets threatens to
undermine the securitization market and choke off an important
source of credit, said industry trade groups.
The American Securitization Forum (ASF) expressed its
concerns in a letter to the FDIC on Monday, along with several
other trade groups.
"We appreciate the FDIC's ongoing support for sustainable
securitization but we are concerned that their proposals would
greatly inhibit the restart of these critical markets," said
Tom Deutsch, executive director of the ASF.
The FDIC is proposing to revise what is known as the safe
harbor rule to include numerous preconditions, including
requirements relating to a transaction's capital structure,
disclosure, documentation, origination and compensation, the
The safe harbor was originally created so that investors
could look to securitized assets for payment without concern
that the assets would be interfered with by the FDIC in the
event of a bank failure.
Ralph Daloisio, chairman of the ASF board of directors and
managing director at Natixis, said under the FDIC's proposals,
investors would bear the burden of the loss of the safe harbor
if any of the securitization preconditions are not satisfied by
"As an investor, it is imperative that I be able to
determine whether the safe harbor will apply so that risks can
be appropriately assessed and a transaction can be efficiently
priced," said Daloisio.
If the aggregate burden is too great, the proposals could
prevent U.S. insured depository institutions from re-engaging
in the securitization markets and force them to rely solely on
deposits or other sources of funding, which would seriously
harm the availability of credit for consumers and small
businesses, the ASF said.
In a securitization, lenders are able to remove debt such
as auto loans, credit cards, student loans, residential and
commercial mortgages, from their balance sheets, package them
into securities and sell them to investors. This allows lenders
to make new loans and keep credit flowing.
The proposed safe harbor would not only affect investors
but could fundamentally change the economics of securitization
for sponsors and potentially lead to the elimination of
securitization in some sectors, the trade groups said.
"We support reasonable efforts to restore and reshape the
securitization market, but we do not believe the proposed safe
harbor is an appropriate means of regulation," said Chris
Killian, vice president of the Securities Industry and
Financial Markets Associations.
Killian said any regulatory changes should take into
consideration views of various market participants and take
into account the total impact "on the ability of institutions
to utilize securitization to fund credit creation."
The Commercial Mortgage Securities Association urged the
FDIC to work with Congress, the Obama administration and the
other agencies that are developing securitization reforms to
avoid conflicting or overlapping requirements that could impede
the restoration of functioning credit markets.
The ASF is proposing that the applicability of the safe
harbor not be conditioned upon the numerous requirements
included in the FDIC's Advance Notice of Proposed Rulemaking
and instead limit any requirements to clear conditions that
allow investors to rely upon the safe harbor without fear that
its benefits could disappear.
(Editing by Leslie Adler)