[Federal Register Volume 75, Number 52 (Thursday, March 18, 2010)]
[Rules and Regulations]
[Pages 12962-12965]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5707]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 360
RIN 3064-AD55
Transitional 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: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is
amending its regulation, Defining Transitional 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 adds a new
provision in order to continue for a limited time the safe harbor
provision for securitizations that would be affected by recent changes
to generally accepted accounting principles. In effect, the Final Rule
permanently ``grandfathers'' all securitizations for which financial
assets were transferred or, for revolving trusts, for which securities
were issued prior to September 30, 2010 so long as those
securitizations complied with the preexisting requirements under
generally accepted accounting principles in effect prior to November
15, 2009. The transitional safe harbor will apply irrespective of
whether or not the securitization satisfies all of the conditions for
sale accounting treatment under generally accepted accounting
principles as effective for reporting periods after November 15, 2009.
In
[[Page 12963]]
addition, the Final Rule confirms that section 360.6 will continue to
protect participations.
DATES: Effective March 18, 2010, the Board of Directors of the Federal
Deposit Insurance Corporation confirms as final with changes, the
interim rule published on November 17, 2010 (74 FR 59066) .
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 section
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 were 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. Because of these uncertainties, securitization practitioners 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. In response to industry concerns, the FDIC
published an Interim Final Rule on November 17, 2010 (74 FR 59066) that
addressed securitizations (and participations) issued before March 31,
2010.
II. The Interim Rule
The Interim Rule amended the Securitization Rule by renumbering
existing paragraph (b) as clause (b)(1) of paragraph (b). The Interim
Rule inserted a new clause (b)(2) of the Securitization Rule that
addresses any securitization (i) for which transfers of financial
assets were made or (ii), for revolving trusts, for which beneficial
interests were issued on or before March 31, 2010. The interim rule
provided that, for these 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 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. Summary of Comments Received
The FDIC requested comments on all aspects of the Interim Final
Rule. The FDIC specifically requested that commenters respond to the
following:
[[Page 12964]]
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
implement changes required by the Proposed Rule and to structure
transactions to comply with the new generally accepted accounting
principles?
In response to the request, the FDIC received two (2) comments from
industry associations. A summary of the comments received follows.
The American Bankers Association (ABA) and the American Bankers
Association Securities Association (ABASA) provided a joint comment
letter to the FDIC and one other comment letter was received from the
American Securitization Forum (ASF). Both comment letters stressed that
loan securitization and participations are important mechanisms that
facilitate financial intermediation and the provision of credit and
therefore, market participants need to have certainty regarding the
treatment of these transactions in a conservatorship or receivership of
the issuer.
In specific reference to the first question posed in the interim
rule, the ABA/ABASA commented that FAS 166 would prospectively affect
the application of the Securitization Rule to participations.
Therefore, it is important that the FDIC include participations in the
protections afforded by the Interim rule. In addition, the ABA/ABASA
suggested that the accounting treatment of a participation should not
control its treatment by the FDIC in a receivership or conservatorship
of the originating lender.
In response to question 2, the ABA/ABASA responded that it
is possible that the changes to GAAP might impact other types of
variable interest entities and other entities, such as pooled funds and
joint ventures. Participations or securities held by these entities may
be consolidated and recorded on bank balance sheets under certain
circumstances and therefore, such entities should also be protected
under the final rule. Participations are protected under the final
rule's transitional safe harbor until September 30, 2010 to the extent
that they would have received sale accounting treatment but for the
GAAP Modifications. The FDIC will be addressing whether other types of
entities should receive protection under the safe harbor in a separate
rulemaking (see Advanced Notice of Proposed Rulemaking 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 After March 31, 2010,
75 FR 934, January 7, 2010).
In response to question 3, both the ABA/ABASA and ASF
commented that the permanent grandfathering of securitization and
participation issuances in process through March 31, 2010 does not
provide an adequate period of time for issuers to adapt to new
regulatory requirements relating to the securitization process,
particularly if changes to the terms of the transactions are necessary.
The ASF suggested that the grandfathering period be extended for
another 12-18 months after March 31, 2010.
In light of the comments received, the FDIC has decided to extend
the transitional safe harbor until September 30, 2010, so long as those
securitizations and participations issued would have complied with the
preexisting section 360.6 under generally accepted accounting
principles in effect prior to November 15, 2009.
IV. The Final Rule
The Final Rule amends the Securitization Rule by renumbering
existing paragraph (b) as clause (b)(1) of paragraph (b). The Final
Rule inserts a new clause (b)(2) of the Securitization Rule that
addresses any securitization (i) for which transfers of financial
assets were made or (ii), for revolving trusts, for which beneficial
interests were issued on or before September 30, 2010. The rule
provides that, for these 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 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.
V. 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 has previously solicited and received comments regarding the
Interim Final Rule. The FDIC for good cause finds that notice and
public procedure with respect to this Final 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 Final Rule effective as of March 18, 2010.
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 Final 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
[[Page 12965]]
the Interim Rule will not have a significant economic impact on a
substantial number of small business entities. The Final Rule merely
extends the safe harbor of section 360.6(b) to securitizations issued
before September 30, 2010 and does not represent a change in the law.
E. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined that the 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.). As required by SBREFA, the FDIC will file the
appropriate reports with Congress and the General Accounting Office so
that the final rule may be reviewed.
F. 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.
0
For the reasons stated above, the Board of Directors of the Federal
Deposit Insurance Corporation confirms as final, the interim rule
amending chapter III of title 12 of the Code of Federal Regulations by
amending Part 360 published on November 17, 2010 (74 FR 59066) with the
following changes:
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.
0
2. Amend Sec. 360.6 by revising paragraph (b)(2) to read as 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 securitization for which transfers of
financial assets were made, or for revolving trusts for which
beneficial interests were issued, on or before September 30, 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.
* * * * *
Dated at Washington, DC, this 10th day of March 2010.
By Order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2010-5707 Filed 3-18-10; 8:45 am]
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