As if we didn’t have enough trouble already, we’re now caught in the political cross-fire between Sheila Bair at the FDIC and the rest of the regulatory apparatchnik of the capital markets. We all commented last week on the FDIC’s Advanced Notice of Proposed Rulemaking (“ANPR”) on the new safe harbor for bank securitization. It seems little more about turf than mission, the FDIC proposed to lard its safe harbor with a number of substantive restrictions on what a securitization transaction would look like, including “skin in the game”, limits on the number of tranches of securitized debt, seasoning requirements on the underlying financial assets and compensation restrictions for the people in the bank responsible for the securitization.
The FDIC couldn’t even get its own Board to approve this as a proposed rule and, hence, we get this Rube Goldberg request for comment on something that looked an awful lot like a rule, but wasn’t (“We’re fixing to think about it”).
Virtually nothing in the end seemed to have much to do with the safety and soundness of our bank institutions which, last I checked, was the FDIC’s principal responsibility, but it did have a lot to do with stuff more customarily the beat of the SEC and the part of Congressional initiatives towards financial reform.
The usual suspects showed up to comment. The banks and the trade organizations said the obvious thing. This has nothing to do with safety and soundness, this is the purview of other regulatory agencies and other potential legislative reform and the FDIC should stick to the knitting. Shockingly, the consumer advocacy cohorts praised the initiative in large measure, it seem to me, on the theory that, if it was bad for the banks, it must be good for the consumers, therefore have at it, Ms. Bair.
The good news, this is probably not going anywhere, but we must be vigilant. There will be rulemaking around the securitization safe harbor, because in light of recent accounting changes (FAS 167), the bank securitization rules have to change. This cannot possibly be good for the economy as a whole, or for the banking sector if FDIC rulemaking makes it hard or, indeed, impossible, for banks to securitize assets. From a safety and soundness, securitization remains hugely important as a risk management tool for the banks. As to the broader, economy, we simply don’t have enough lending capacity in the bank portfolios to support the needs of the capital markets.
Keep your eyes open.
Photo: Flickr user jclarson