Wednesday, September 29, 2010

FDIC Set To Approve Securitization Rule

SEPTEMBER 27, 2010, 11:30 A.M. ET

By VICTORIA MCGRANE, Wall Street Journal

WASHINGTON—U.S. banking regulators on Monday continued to press forward with new rules governing asset-backed securities, seeking to make banks more accountable given the role securitization has played in a number of bank failures.

The Federal Deposit Insurance Corp. will consider and vote on a final proposal that would require sellers of securitized assets to retain 5% of the risk, as well as set new standards for certain types of assets. The new standards would apply to transactions that occur after Dec. 31 of this year.

The FDIC's board will also get a briefing from staff on certain narrow aspects of the new power given to the agency to wind down systemically important financial firms teetering on the verge of failure.

Staff said they held off offering a formal draft proposal in order to have more time to consult with other key regulators. The board is expected to vote on a proposal dealing with several narrow aspects of the resolution authority soon, an FDIC official said.

At issue is how the FDIC treats securitized assets when a bank fails. The agency had traditionally provided a safe harbor from such assets, preventing the government from going after the assets backing the securities in the event of a failure.

Recent accounting-rule changes, as well as the role securitization has played in the growing number of bank failures, have forced regulators to reconsider the issue.

Write to Victoria McGrane at