In a comment letter to the Federal Deposit Insurance Corporation (FDIC), the Securities Industry and Financial Markets Association's (SIFMA) Securitization Group (SSG) reiterates its support for coordinated, comprehensive securitization reform and for an insolvency safe harbor rule that provides the required certainty to investors, rating agencies and other market participants to continue to participate in the securitization market. However, SIFMA's SSG finds that a proposal by the FDIC achieves none of these goals.
"Restoring the securitization market is essential to ensuring consumers and small businesses have access to affordable credit," said Richard Dorfman, head of the SSG. "We believe the FDIC should work in concert with actions currently underway by Congress and other regulatory agencies to ensure passage of consistent regulations that facilitate comprehensive securitization reform."
In its comment letter, SIFMA notes that the FDIC's proposal addresses many of the issues under consideration as part of the financial regulatory reform bill being crafted by Congress. A proposal for asset-backed securities reform by the Securities and Exchange Commission (SEC) which offers sweeping changes to its disclosure and reporting requirements addresses many of the disclosure issues proposed by the FDIC. SIFMA believes subjecting securitizations to multiple and inconsistent regulations will impede the goal of successful securitization reform and may reduce the use of securitization, thus negatively impacting liquidity and credit availability to consumers and small businesses, among others.
SIFMA also notes that the FDIC's proposed changes to the insolvency safe harbor will not provide adequate assurance with respect to the treatment of assets in the event of the insolvency of an insured depository institution. It is no longer based on traditional legal principles of insolvency laws but rather on the basis of accounting principles and certain other market conditions that are vague or subjective and create risk to investors by leaving the door open to change or to the reassessment of eligibility for the safe harbor after a securitization closes.
SIFMA requests the FDIC extend the interim safe harbor, currently in effect until September 30, 2010, until it, in conjunction with the other bank regulatory agencies and the SEC, promulgate final regulations under the financial reform legislation.
SIFMA’s comment letter can be found at the following link: http://www.sifma.org/capital_markets/docs/SIFMA-FDIC-Safe-Harbor.pdf