[Federal Register: November 17, 2009 (Volume 74, Number 220)]
[Rules and Regulations]
[Page 59066-59068]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no09-3]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 360
RIN 3064-AD53
Defining Safe Harbor Protection for Treatment by the Federal
Deposit Insurance Corporation as Conservator or Receiver of Financial
Assets Transferred by an Insured Depository Institution in Connection
With a Securitization or Participation
AGENCY: Federal Deposit Insurance Corporation (FDIC)
ACTION: Interim rule with request for comments.
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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is
amending its regulations defining safe harbor protection for treatment
by the Federal Deposit Insurance Corporation as conservator or receiver
of financial assets transferred in connection with a securitization or
participation. The amendment continues for a limited time the safe
harbor provision for participations or securitizations that would be
affected by recent changes to generally accepted accounting principles.
In effect, the Interim Rule ``grandfathers'' all participations and
securitizations for which financial assets were transferred or, for
revolving securitization trusts, for which securities were issued prior
to March 31, 2010 so long as those participations or securitizations
complied with the preexisting provision under generally accepted
accounting principles in effect prior to November 15, 2009. The
transitional safe harbor will apply irrespective of whether or not the
participation or securitization satisfies all of the conditions for
sale accounting treatment under generally accepted accounting
principles as effective for reporting periods after November 15, 2009.
The FDIC is intending to publish in December 2009, a Notice of Proposed
Rulemaking to amend its regulations further regarding the treatment of
participations and securitizations issued after March 31, 2010.
DATES: The Interim Rule is effective November 17, 2009, following its
adoption by the Board of Directors of the FDIC on November 12, 2009.
Comments on the Interim Rule must be received by January 4, 2010.
[[Page 59067]]
ADDRESSES: You may submit comments on the Interim Rule, by any of the
following methods:
Agency Web Site: http://www.FDIC.gov/regulations/laws/
federal/notices.html. Follow instructions for submitting comments on
the Agency Web Site.
E-mail: Comments@FDIC.gov. Include RIN 3064-AD53
on the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Instructions: All comments received will be posted generally
without change to http://www.fdic.gov/regulations/laws/federal/
propose.html, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Michael Krimminger, Office of the
Chairman, 202-898-8950; George Alexander, Division of Resolutions and
Receiverships, 202 898-3718; or R. Penfield Starke, Legal Division,
703-562-2422, Federal Deposit Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 2000, the FDIC clarified the scope of its statutory authority as
conservator or receiver to disaffirm or repudiate contracts of an
insured depository institution (``IDI'') with respect to transfers of
financial assets by an IDI in connection with a securitization or
participation when it adopted a regulation codified at 12 CFR 360.6
(``the Securitization Rule''). This rule provides that the FDIC as
conservator or receiver will not use its statutory authority to
disaffirm or repudiate contracts to reclaim, recover, or recharacterize
as property of the institution or the receivership any financial assets
transferred by an IDI in connection with a securitization or
participation or in the form of a participation, provided that such
transfer meets all conditions for sale accounting treatment under
generally accepted accounting principles (``GAAP''). The rule was a
clarification, rather than a limitation, of the repudiation power
because such power authorizes the conservator or receiver to breach a
contract or lease entered into by an IDI and be legally excused from
further performance but it is not an avoiding power enabling the
conservator or receiver to recover assets that were previously
transferred by the IDI in connection with the contract. The
Securitization Rule provided a ``safe harbor'' to permit transfers of
financial assets by IDIs to an issuing entity in connection with a
securitization or in the form of a participation to satisfy the ``legal
isolation'' condition of GAAP as it applies to institutions for which
the FDIC may be appointed as conservator or receiver. To satisfy the
legal isolation condition, the transferred financial asset must have
been presumptively placed beyond the reach of the transferor, its
creditors, a bankruptcy trustee, or in the case of an IDI, the FDIC as
conservator or receiver. Since its adoption, the Securitization Rule
has been relied on by securitization participants, including rating
agencies, as assurance that investors could look to securitized
financial assets for payment without concern that the financial assets
would be interfered with by the FDIC as conservator or receiver.
Recently, the implementation of new accounting rules has created
uncertainty for securitization participants. On June 12, 2009, the
Financial Accounting Standards Board (``FASB'') finalized modifications
to GAAP through Statement of Financial Accounting Standards No. 166,
Accounting for Transfers of Financial Assets, an Amendment of FASB
Statement No. 140 (``FAS 166'') and Statement of Financial Accounting
Standards No. 167, Amendments to FASB Interpretation No. 46(R) (``FAS
167'') (the ``2009 GAAP Modifications''). The 2009 GAAP Modifications
are effective for annual financial statement reporting periods that
begin after November 15, 2009. For most IDIs, the 2009 GAAP
Modifications will be effective for reporting periods beginning after
January 1, 2010. The 2009 GAAP Modifications made changes that affect
whether a special purpose entity (``SPE'') must be consolidated for
financial reporting purposes, thereby subjecting many SPEs to GAAP
consolidation requirements. These accounting changes will require some
IDIs to consolidate an issuing entity to which financial assets have
been transferred for securitization on to their balance sheets for
financial reporting purposes. Given the likely accounting treatment,
securitizations could be considered to be an alternative form of
secured borrowing. As a result, the safe harbor provision of the
Securitization Rule may not apply to the transfer.
FAS 166 also affects the treatment of participations issued by an
IDI, in that it defines a participating interest essentially as a pari-
passu pro-rata interest in a financial asset and subjects the sale of a
participation interest to the same conditions that are imposed on the
sale of a financial asset. FAS 166 provides that a transfer of a
participation interest that does not qualify for sale treatment will be
viewed as a secured borrowing. While the GAAP modifications have some
effect on participations, most participations are likely to continue to
meet the conditions for sale accounting treatment under GAAP.
The 2009 GAAP Modifications affect the way securitizations are
viewed by the rating agencies and whether they can achieve ratings that
are based solely on the credit quality of the financial assets,
independent from the rating of the IDI. Rating agencies are concerned
with several issues, including the ability of a securitization
transaction to pay timely principal and interest in the event the FDIC
is appointed receiver or conservator of the IDI. Moody's, Standard &
Poor's, and Fitch have expressed the view that because of the 2009 GAAP
modifications and the extent of the FDIC's rights and powers as
conservator or receiver, bank securitization transactions are unlikely
to receive AAA ratings and would have to be linked to the rating of the
IDI. Securitization practitioners have asked the FDIC to provide
assurances regarding the position of the conservator or receiver as to
the treatment of both existing and future securitization transactions
to enable securitizations to be structured in a manner that enables
them to achieve de-linked ratings. This Interim Rule addresses
securitizations and participations issued before March 31, 2010.
II. The Interim Rule
The Interim Rule amends the Securitization Rule by renumbering
existing paragraph (b) as clause (b)(1) of paragraph (b). The Interim
Rule inserts a new clause (b)(2) of the Securitization Rule that
addresses any participation or securitization (i) for which transfers
of financial assets were made or (ii), for revolving securitization
trusts, for which beneficial interests were issued on or before March
31, 2010. The rule provides that, for these participations or
securitizations, the FDIC as conservator or receiver shall not, in the
exercise of its statutory authority to disaffirm or repudiate
contracts, reclaim, recover, or recharacterize as property of the
institution or the receivership any such transferred financial assets
notwithstanding that such transfer does not satisfy all conditions for
sale accounting treatment under generally accepted accounting
principles as
[[Page 59068]]
effective for reporting periods after November 15, 2009, if such
transfer satisfied the conditions for sale accounting treatment set
forth by generally accepted accounting principles in effect for
reporting periods before November 15, 2009, except for the ``legal
isolation'' condition that is addressed by the rule.
III. Solicitation of Comments
The FDIC is soliciting comments on all aspects of the Interim Final
Rule. The FDIC specifically requests comments responding to the
following:
1. Do the changes to the accounting rules affect the application of
the Securitization Rule to participations? If so, are there changes to
the Interim Rule that are needed to protect different types of
participations issued by IDIs more broadly?
2. Does the Interim Rule adequately encompass all transactions that
should be included within its transitional safe harbor?
3. Is the transition period to March 31, 2010 sufficient to
structure transactions to comply with the new generally accepted
accounting principles?
IV. Regulatory Procedure
A. Administrative Procedure Act
The Administrative Procedure Act (``APA'') provides that general
notice of a proposed rulemaking shall be published and that interested
persons shall have an opportunity to participate in the rulemaking by
submitting written data, views, or arguments, except where the agency
finds for good cause that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest. The
FDIC for good cause finds that notice and public procedure with respect
to this Interim Rule would be impracticable, unnecessary, or contrary
to the public interest because the 2009 GAAP Modifications become
effective as of the financial reporting period starting on or after
November 15, 2009 and retroactively apply to existing securitizations.
The FDIC believes that it is in the best interest of the U.S. banking
industry and economic for the FDIC to provide assurances with respect
to the treatment of existing securitizations that will be affected by
the 2009 GAAP Modifications.
The APA also provides that publication of a substantive rule shall
be made not less than 30 days before its effective date except as
otherwise provided by the agency for good cause found and published
with the rule. Because of the retroactive application of the 2009 GAAP
Modifications and the immediate need for assurances for securitization
participants and the banking industry with respect to existing
securitizations and participations, the FDIC invokes this good cause
exception to make this Interim Rule effective as of November 12, 2009.
Nevertheless, the FDIC desires to have the benefit of public comment
before adopting a final rule and thus invites interested parties to
submit comments during a 45-day comment period. The FDIC will revise
the Interim Rule as appropriate after consideration of the comments
received.
B. Community Development and Regulatory Improvement Act
The Riegle Community Development and Regulatory Improvement Act
(CDRIA) requires that any new rule prescribed by a Federal banking
agency that imposes additional reporting, disclosures, or other new
requirements on insured depository institutions take effect on the
first day of a calendar quarter. 12 U.S.C. section 4802. This
requirement does not apply because the Interim Rule does not impose
additional reporting, disclosures, or other new requirements on insured
depository institution.
C. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. section 601 et seq.), it is certified that the Interim Rule will
not have a significant economic impact on a substantial number of small
business entities. The Interim Rule merely extends the safe harbor of
section 360.6(b) to securitizations issued before March 31, 2010 and
does not represent a change in the law.
D. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined the Interim
Final Rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA) (5 U.S.C. 801 et seq.).
E. Paperwork Reduction Act
No collection of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. section 3501 et seq.) is contained
in the final rule. Consequently, no information was submitted to the
Office of Management and Budget for review.
List of Subjects in 12 CFR Part 360
Banks, Banking, Bank deposit insurance, Holding companies, National
banks, Participations, Reporting and recordkeeping requirements,
Savings associations, Securitizations.
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For the reasons stated above, the Board of Directors of the Federal
Deposit Insurance Corporation amends title 12 of the Code of Federal
Regulations by amending part 360 as follows:
PART 360--RESOLUTION AND RECEIVERSHIP RULES
0
1. The authority citation for part 360 continues to read as follows:
Authority: 12 U.S.C. 1821(d)(1), 1821(d)(10)(C), 1821(d)(11),
1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h),
Pub.L. 101-73, 103 Stat. 357.
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2. In Sec. 360.6, redesignate paragraph (b) as paragraph (b)(1) and
add a new paragraph (b)(2) to read s follows:
Sec. 360.6 Treatment by the Federal Deposit Insurance Corporation as
conservator or receiver of financial assets transferred in connection
with a securitization or participation.
* * * * *
(b) * * *
(2) With respect to any participation or securitization for which
transfers of financial assets were made or, for revolving
securitization trusts, for which beneficial interests were issued on or
before March 31, 2010, the FDIC as conservator or receiver shall not,
in the exercise of its statutory authority to disaffirm or repudiate
contracts, reclaim, recover, or recharacterize as property of the
institution or the receivership any such transferred financial assets
notwithstanding that such transfer does not satisfy all conditions for
sale accounting treatment under generally accepted accounting
principles as effective for reporting periods after November 15, 2009,
provided that such transfer satisfied the conditions for sale
accounting treatment set forth by generally accepted accounting
principles in effect for reporting periods before November 15, 2009,
except for the ``legal isolation'' condition that is addressed by this
rule.
By Order of the Board of Directors.
Dated at Washington DC, this 12th day of November 2009.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. E9-27592 Filed 11-16-09; 8:45 am]