By Kim Dixon
WASHINGTON, Dec 15 (Reuters) - U.S. bank regulators were divided on Tuesday over new restrictions on banks and other issuers of securitized products as they tried to jump-start a market blamed for fuelling the financial crisis.
The board of the Federal Deposit Insurance Corp agreed to an interim proposed rule to give some securitized assets more protection, on a voluntary basis, if the banks offering them abide by certain new restrictions.
The board effectively postponed changes in rules governing securitization -- rebundling loans and other assets into complex securities for resale -- by approving an interim rule, to be followed by another public comment period based on more specific proposals.
The FDIC board was split on restrictions placed on issuers of securitized products contained in the proposal originally backed by FDIC Chairman Sheila Bair.
The proposal is now subject to a 45-day comment period and may change from Bair's initial plan.
At issue are what strings to attach to the new protections applied to securitized assets by regulators. Bair has proposed banks hold some of the securitized assets on their books, and hold assets longer before securitization.
Comptroller of the Currency John Dugan, a board member, criticized the sample regulations included in Bair's proposal and said they do not reflect the opinion of the entire board.
'I want to be clear that these are only examples, do not indicate the presumptive view of the board, and in fact include a number of provisions with which I would have significant concerns,' Dugan said.
CRISIS CATALYST
Regulators want to boost securitization to speed financial market recovery but are keen to tighten standards and cut risk-taking in the sector.
Financial sector lobbyists say new rules could hold back market recovery and raise costs for consumers and issuers.
While securitization did not cause the financial crisis, it did play a major role, Bair said.
'Securitization certainly encouraged a focus by non-banks and later some insured banks and thrifts on deal production and fee generation at the expense of consumer protection and sound underwriting,' she said.
The market for the securitizations froze during the crisis and has only recently begun to thaw, largely due to government support.
Exotic securitizations fueled the recent financial crisis as bad loans were packaged, then chopped into smaller securities that spread risk through the financial system.
The American Securitization Forum, a lobbying group for issuers, financial intermediaries and others, argued that some of the proposals could slow the re-start of the market.
One provision would require banks to hold a mortgage loan for up to a year on their balance sheets prior to securitization.
'As opposed to restarting the market, that could actually force the market to have to wait,' deputy executive director Tom Deutsch said.
The industry also opposes a proposal from Bair for banks to voluntarily retain an ownership interest in the loans they package into securities -- or keeping 'skin in the game.'
Dugan, who has clashed with Bair in the past, cited concerns by 'other agencies and interested parties' that the requirements could unintentionally increase costs for consumers and lead to a pullback in lending by banks.
He criticized the 12-month balance sheet waiting period, among other provisions.
The rules would be voluntary, but banks could be enticed to follow them because the so-called safe harbor protection and higher standards could mean better credit ratings and prices for the securitizations.
CAPITAL CUSHION TRANSITION, BUDGET APPROVED
In a separate vote, the FDIC board agreed to give banks more time to build capital cushions against more than $1 trillion of assets that will be moved back on their balance sheets Jan. 1.
The FDIC unanimously agreed to phase in the capital implications associated with an accounting change that will move risky assets previously off-balance sheet back on the books next year.
The vote on Tuesday gives banks at least two more quarters to comply with the new rules. Banks will need to be fully compliant by the middle of 2011.
That move was strongly backed by banks and other financial institutions.
Still, the securities group backs significantly lower capital requirements during that phase-in period. It also is concerned the new capital requirements treats all products the same.
In a third vote, the board approved a 55 percent boost to its 2010 corporate operating budget, including an additional 1,643 new employees, nearly all of them be temporary.
They are needed to deal with the an expected continued influx of bank failures through next year, FDIC staff said.
(Reporting by Kim Dixon and Karey Wutkowski; editing by Andrew Hay) delay Keywords: FINANCIAL FDIC/ (kim.dixon@reuters.com; +1 202 354-5864; Reuters Messaging: kim.dixon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, Dec 15 (Reuters) - U.S. bank regulators were divided on Tuesday over new restrictions on banks and other issuers of securitized products as they tried to jump-start a market blamed for fuelling the financial crisis.
The board of the Federal Deposit Insurance Corp agreed to an interim proposed rule to give some securitized assets more protection, on a voluntary basis, if the banks offering them abide by certain new restrictions.
The board effectively postponed changes in rules governing securitization -- rebundling loans and other assets into complex securities for resale -- by approving an interim rule, to be followed by another public comment period based on more specific proposals.
The FDIC board was split on restrictions placed on issuers of securitized products contained in the proposal originally backed by FDIC Chairman Sheila Bair.
The proposal is now subject to a 45-day comment period and may change from Bair's initial plan.
At issue are what strings to attach to the new protections applied to securitized assets by regulators. Bair has proposed banks hold some of the securitized assets on their books, and hold assets longer before securitization.
Comptroller of the Currency John Dugan, a board member, criticized the sample regulations included in Bair's proposal and said they do not reflect the opinion of the entire board.
'I want to be clear that these are only examples, do not indicate the presumptive view of the board, and in fact include a number of provisions with which I would have significant concerns,' Dugan said.
CRISIS CATALYST
Regulators want to boost securitization to speed financial market recovery but are keen to tighten standards and cut risk-taking in the sector.
Financial sector lobbyists say new rules could hold back market recovery and raise costs for consumers and issuers.
While securitization did not cause the financial crisis, it did play a major role, Bair said.
'Securitization certainly encouraged a focus by non-banks and later some insured banks and thrifts on deal production and fee generation at the expense of consumer protection and sound underwriting,' she said.
The market for the securitizations froze during the crisis and has only recently begun to thaw, largely due to government support.
Exotic securitizations fueled the recent financial crisis as bad loans were packaged, then chopped into smaller securities that spread risk through the financial system.
The American Securitization Forum, a lobbying group for issuers, financial intermediaries and others, argued that some of the proposals could slow the re-start of the market.
One provision would require banks to hold a mortgage loan for up to a year on their balance sheets prior to securitization.
'As opposed to restarting the market, that could actually force the market to have to wait,' deputy executive director Tom Deutsch said.
The industry also opposes a proposal from Bair for banks to voluntarily retain an ownership interest in the loans they package into securities -- or keeping 'skin in the game.'
Dugan, who has clashed with Bair in the past, cited concerns by 'other agencies and interested parties' that the requirements could unintentionally increase costs for consumers and lead to a pullback in lending by banks.
He criticized the 12-month balance sheet waiting period, among other provisions.
The rules would be voluntary, but banks could be enticed to follow them because the so-called safe harbor protection and higher standards could mean better credit ratings and prices for the securitizations.
CAPITAL CUSHION TRANSITION, BUDGET APPROVED
In a separate vote, the FDIC board agreed to give banks more time to build capital cushions against more than $1 trillion of assets that will be moved back on their balance sheets Jan. 1.
The FDIC unanimously agreed to phase in the capital implications associated with an accounting change that will move risky assets previously off-balance sheet back on the books next year.
The vote on Tuesday gives banks at least two more quarters to comply with the new rules. Banks will need to be fully compliant by the middle of 2011.
That move was strongly backed by banks and other financial institutions.
Still, the securities group backs significantly lower capital requirements during that phase-in period. It also is concerned the new capital requirements treats all products the same.
In a third vote, the board approved a 55 percent boost to its 2010 corporate operating budget, including an additional 1,643 new employees, nearly all of them be temporary.
They are needed to deal with the an expected continued influx of bank failures through next year, FDIC staff said.
(Reporting by Kim Dixon and Karey Wutkowski; editing by Andrew Hay) delay Keywords: FINANCIAL FDIC/ (kim.dixon@reuters.com; +1 202 354-5864; Reuters Messaging: kim.dixon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.