Did the FDIC Just Float a Band-Aid on Safe Harbor?

There are a few articles circulating this week that refer to a letter that the FDIC has apparently delivered to the American Securitization Forum which describes a proposed extension of the interim policy to not exercise the Agency’s liquidation rights, as it relates to assets pledged to securitizations.

For the better part of 3 years, the FDIC had been rattling its saber about going after mortgages and other assets pledged to securitizations in connection with failing banks and non-bank issuers.  Dodd-Frank further institutionalized this position with its “Orderly Liquidation Authority” provision.

What we may be winessing is that the regulator may be starting to really understand just how important a sound safe harbor standard and the sanctity of concepts like “true sale” and “bankruptcy remote” are to a healthy securitization and, let’s go even further,  a healthy capital market.

The “liquidation topic” was on the agenda for the FDIC’s board meeting this week.  Interestingly, while other topics were discussed and the results of those discussions were posted by the Agency on its  website, last we checked, the “letter” to the ASF was not posted.  We are left thinking that the intention was to “float” the concept past the securitization industry, somewhat quietly first, to test the waters.

What we understand is that the proposal is to simply postpone the implementation of the liquidation rule for another three months (through June 2011).  However, we would like to think that this is a good signal that there is some real second thoughts about the long-term debilitating effect that the threat of the FDIC utilizing this authority is having and will continue to have on the revival of the securitization markets.

About markferraris
Managing Principal Orchard Street Partners LLC

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