New FDIC Rule Would Have Asset-Backed Securities Issuers Retain 5% of Risk

Posted May 11th 2010 6:30PM by Joseph Lazzaro

Finally, some common sense and accountability-oriented reforms with regard to the nation's infamous asset-backed securities market? Perhaps.

On Tuesday, the Federal Deposit Insurance Corporation (FDIC) voted 3-2 to require ABS sellers to keep 5% of the credit risk in exchange for a guarantee against seizure, The Associated Press reported Tuesday. The theory behind it is that banks with the 5% exposure will be more careful about originating mortgages/loans, etc.

The FDIC board also voted to require the biggest banks to submit "funeral plans" to deal with their possible collapse.

Each measure will now undergo a 45-day comment period, followed by an evaluation and final vote by the FDIC.

Economic Analysis: Look for the bank lobby to oppose the 5% rule. The Bank of America Corporation's (BAC) Jack Schakett, a credit loss mitigation strategies executive, told the AP the requirement would "hamper the housing market."

Even so, some 'retained-stake' provision has to be included in new the ABS/MBS system. Right now, there are too many incentives for banks and mortgage lenders to write problematic loans: retaining a portion of the loss, if the loan goes bad, is one corrective tonic, among others.

Tags: asset-backed securities, banking sector, banks, FDIC, inthenews

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Reader Comments (Page 1 of 1)

5-12-2010 @ 12:02PM

Leo said...

Anything Bank of America does not like I am for, BOA is POS - took two years to close a account that they got when my bank was sold to them. Treid to collect a fee on closed accounts for keeping it open.
Spoke to people in Rhode Island-Get letter form FLA.
Called back got Kentucky-Letter form letter form Mass.
Called back got Minn - Letter from Chicago.
Finnaly closed account 2 years what bone heads.