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Another item to add to the growing list of possible unintended consequences of financial reform in connection with ABS: Section 210(a)(11) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”)—Avoidable Transfers.

Here’s the who, what, where, when, why and how ABS are affected.

WHO? A “covered financial company” of which the FDIC becomes the liquidating receiver. Under the Reform Act, a “covered financial company” is a “financial company” as to which a “systemic risk determination” (such financial company is deemed to pose a significant risk to the financial stability of the U.S. upon its failure) has been made by the Secretary of the U.S. Treasury in consultation with the President. Entities most likely to be affected are non-bank “financial companies,” bank holding companies, and non-bank U.S. subsidiaries of either– if such subsidiary is in a financial business. An insured depository institution cannot be a “covered financial company.”
 Continue Reading Fa la la la la, la la, OLA

If there’s a worry bead left to worry, hold it in reserve for Basel III. Basel III (its informal name – it’s actually a patch job on the never really fully implemented Basel II) is the most recent effort by the Basel Committee on Banking Supervision to fix the worldwide financial system. I am far from a master of the nuances of this enormous regulatory undertaking, but I know enough to be worried. As a friend and colleague said, “if the only right answer on Jeopardy to ‘What is Basel?’ were ‘a delightful walled medieval city,’ we might be better off.”

Basel II was never fully implemented, certainly not in the United States. While Basel II generally resulted in a significant relaxation of capital requirements for most lending activities, (that worked well, right), it stipulated that many types of commercial real estate loans warranted uniquely higher capital changes.  These loans, called High Volatility Commercial Real Estate or HVCRE, include acquisition and development loans, construction loans and loans to sectors deemed by the applicable regulators to have higher risks of default and greater loss expectancy.  As Basel II was never implemented here, these CRE rules never really bit.
 Continue Reading Basel III: Big Deal or Not