The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision have jointly adopted the attached final rule concerning regulatory capital standards. The new rule amends the regulatory capital treatment of recourse arrangements, direct credit substitutes, residual interests in asset securitizations, and asset- and mortgage-backed securities, better aligning regulatory capital requirements with the risk associated with these positions. The rule primarily affects banks involved in securitization-related activities, including banks that sell and securitize assets, service assets, guarantee the performance of a third party's assets, or invest in asset-backed and mortgage-backed securities. Banks involved in the securitization or sale of assets often provide credit enhancements -generally referred to in the final rule as recourse, direct credit substitutes, and residual interests - in order to protect investors from incurring credit losses on loans and other financial assets that have been sold or securitized. Recourse arises when a bank retains credit risk on assets it sells if the credit risk exceeds a pro rata share of the bank's claim on the assets. In a direct credit substitute, a bank assumes credit risk on a third-party asset and the risk exceeds the pro rata share of the bank's interest in the asset. A residual interest is an on-balance sheet asset created in an asset sale that exposes a bank to credit risk in excess of its pro rata claim on the asset. The final rule amends the current regulatory capital standards by:
The final rule takes effect on January 1, 2002. Any transactions settled on or after January 1, 2002, are subject to this rule. Early adoption of the rule is permitted for transactions settled before the effective date that result in a reduced capital requirement. Conversely, banks may delay until December 31, 2002, the application of the final rule to transactions settled before January 1 that result in increased capital requirements. The final rule does not include a managed assets capital charge for revolving credit securitizations that contain an early amortization feature (e.g., credit card securitizations). The regulatory agencies strongly believe that the risks associated with securitization, including those posed by an early amortization feature, are not fully captured in their current regulatory capital standards, and expect to address this risk either in a future rulemaking or through supervisory guidance. For more information, please contact your FDIC regional office; Robert F. Storch (202-898-8906) or Jason C. Cave (202-898-3548), Division of Supervision; or Michael B. Phillips (202-898-3581) or Marc J. Goldstrom (202-898-8807), Legal Division.
Attachment: Nov. 29, 2001, Federal Register , pages 59614-59667 Distribution: FDIC-Supervised Banks (Commercial and Savings) NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 562-2200). |
Last Updated 5/13/2004 | communications@fdic.gov |