FDIC Position on Safe Harbor Clarified? Maybe not.

In late February, FitchResearch published a report detailing their recent analysis of the impact of Dodd-Frank, including its Orderly Liquidation Authority  (“OLA”) provision and the FDIC’s interpretation of the act as it relates to Safe Harbor protections for securitizations.

It’s obvious that Fitch spent some quality time both researching the FDIC’s deliberations about the effects of Dodd-Frank on Safe Harbor and the Agency’s most recent policy statements about how they would intend to use their new powers .  The report provides some great background about the history of Safe Harbor and the related concept of  “true sale” as they have been utilized to provide protection and instill confidence in securitization structures for investors for more than three decades.

However, we remain unconvinced of Fitch’s conclusions about the FDIC’s official position on Safe Harbor.  Too many times in the article, Fitch refers to their “impressions” and their “interpretations” of comments made by the FDIC during a series of interviews Fitch recently conducted with the Agency.

We are left with a less than comfortable feeling that Fitch’s conclusions, as genuine as they may be, may reflect too much wishful thinking.  When we read answers to questions about how the FDIC would interpret their rights in its role as receiver for a failing financial organization that include phrases like “the FDIC will not seek to exercise its authority under Dodd-Frank”, we really don’t get that warm and fuzzy feeling.  We’ll accept that the general counsel’s office at the FDIC may believe this today and it seems to be that comments like this are what Fitch has based their conclusions upon.

We’re not as sure that current FDIC staff interpretations about how the FDIC may or may not act, when a bank falls into receivership down the path, is really something that should be broadly relied upon by investors.  The Fitch Report is excellent in the background and analysis that it provides but, perhaps, it comes up a little short in its conclusions.

Of course, you should draw your own conclusions.  The report can be accessed at:

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605045

About markferraris
Managing Principal Orchard Street Partners LLC

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