[Federal Register Volume 80, Number 20 (Friday, January 30, 2015)]
[Proposed Rules]
[Pages 5076-5079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01444]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR 360

RIN 3064-AE32


Notice of Proposed Rulemaking To Revise a Section Relating to the 
Treatment of Financial Assets Transferred in Connection With a 
Securitization or Participation

AGENCY: Federal Deposit Insurance Corporation (``FDIC'').

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The FDIC is proposing a rulemaking that would revise certain 
provisions of its securitization safe harbor rule, which relates to the 
treatment of financial assets transferred in connection with a 
securitization or participation, in order to clarify the requirements 
of the Securitization Safe Harbor as to the retention of an economic 
interest in the credit risk of securitized financial assets upon and 
following the effective date of the credit risk retention regulations 
adopted under Section 15G of the Securities Exchange Act.

DATES: Comments on the Proposed Rule must be received by March 31, 
2015.
    You may submit comments, identified by RIN number, by any of the 
following methods:
    <bullet> Agency Web site: http://www.FDIC.gov/regulations/laws/federal_. Follow instructions for submitting comments on the agency Web 
site.
    <bullet> Email: <a href="/cdn-cgi/l/email-protection#2c6f4341414942585f6c6a68656f024b435a"><span class="__cf_email__" data-cfemail="9eddf1f3f3fbf0eaedded8dad7ddb0f9f1e8">[email protected]</span></a>. Include RIN 3064-AE32 in the 
subject line of the message.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
    <bullet> Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7:00 a.m. and 5:00 p.m.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Instructions: All comments will be posted without change to http://www.fdic.gov/regulations/laws/federal/_, including any personal 
information provided. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.

FOR FURTHER INFORMATION CONTACT: George H. Williamson, Manager, 
Division of Resolutions and

[[Page 5077]]

Receiverships, (571) 858-8199. Phillip E. Sloan, Counsel, Legal 
Division, (703) 562-6137.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Federal Deposit Insurance Corporation (FDIC), in regulations 
codified at 12 CFR 360.6 (the Securitization Safe Harbor Rule), set 
forth criteria under which in its capacity as receiver or conservator 
of an insured depository institution the FDIC will not, in the exercise 
of its authority to repudiate contracts, recover or reclaim financial 
assets transferred in connection with securitization transactions. 
Asset transfers that, under the Securitization Safe Harbor Rule, are 
not subject to recovery or reclamation through the exercise of the 
FDIC's repudiation authority include those that pertain to certain 
grandfathered transactions, such as, for example, asset transfers made 
prior to December 31, 2010 which satisfied the conditions (except for 
the legal isolation condition addressed by the Securitization Safe 
Harbor Rule) for sale accounting treatment under generally accepted 
accounting principles (GAAP) in effect for reporting periods prior to 
November 15, 2009 and which pertain to a securitization transaction 
that satisfied certain other requirements. In addition, the 
Securitization Safe Harbor Rule provides that asset transfers that are 
not grandfathered, but that satisfy the conditions (except for the 
legal isolation condition addressed by the Securitization Safe Harbor 
Rule) for sale accounting treatment under GAAP in effect for reporting 
periods after November 15, 2009 and that pertain to a securitization 
transaction that satisfies all other conditions of the Securitization 
Safe Harbor Rule (such asset transfers, together with grandfathered 
asset transfers, are referred to collectively as Safe Harbor Transfers) 
will not be subject to FDIC recovery or reclamation actions through the 
exercise of the FDIC's repudiation authority. For any securitization 
transaction in respect of which transfers of financial assets do not 
qualify as Safe Harbor Transfers but which transaction satisfies all of 
its other requirements, the Securitization Safe Harbor Rule provides 
that, in the event the FDIC as receiver or conservator remains in 
monetary default for a specified period under a securitization due to 
its failure to pay or apply collections or repudiates the 
securitization asset transfer agreement and does not pay damages within 
a specified period, certain remedies can be exercised on an expedited 
basis.
    Paragraph (b)(5)(i) of the Securitization Safe Harbor Rule sets 
forth the conditions relating to credit risk retention that apply to 
transfers of financial assets in connection with securitizations that 
are not grandfathered by the Securitization Safe Harbor Rule. Under 
paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule, prior to 
the effective date of regulations required under Section 15G of the 
Securities Exchange Act, 15 U.S.C. 78a et seq. (``Section 15G''), the 
documents governing such securitization must require that the sponsor 
retain an economic interest in not less than five (5) percent of the 
credit risk of the financial assets relating to the securitization. The 
requirement in paragraph (b)(5)(i)(A) of the Securitization Safe Harbor 
Rule, that the documents require retention of an economic interest is 
consistent with many other provisions of the Securitization Safe Harbor 
Rule, which are similarly expressed as requirements for the 
securitization documentation, rather than as conditions requiring 
actual compliance with the provision that is required to be included in 
the documentation. Paragraph (b)(5)(i)(B) of the Securitization Safe 
Harbor Rule does not explicitly refer to the securitization 
documentation, but provides that, upon the effective date of the 
regulations required under Section 15G (the Section 15G Regulations), 
such regulations shall exclusively govern the requirement to retain an 
economic interest in the credit risk of the financial assets.
    Section 15G provides that regulations issued thereunder become 
effective with respect to residential mortgage securitizations one year 
after the date on which the regulations are published in the Federal 
Register and, with respect to all other securitizations, two years 
after such publication date. The Section 15G Regulations were published 
in the Federal Register at 79 FR 77602 on December 24, 2014. The 
Federal Register publication of the Section 15G Regulations specifies 
``compliance dates'' that correspond to these effective dates. However, 
the Federal Register publication also specifies February 23, 2015 as 
the ``effective date'' of the Section 15G Regulations in accordance 
with Federal Register editorial conventions, which require that a 
Federal Register publication specify as the effective date the date on 
which a rule affects the current Code of Federal Regulations.\1\ The 
Proposed Rule is designed, in part, to eliminate any confusion that 
might be created by the use of ``effective date'' in this way and to 
clarify when compliance with paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule is required.
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    \1\ See 79 FR 77602 (December 24, 2014).
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    In connection with the notice of proposed rulemaking relating to 
the Section 15G Regulations, FDIC staff received a comment that 
suggested that certain points relating to paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule should be clarified, and in following 
up on the comment, the FDIC identified two points that are addressed in 
the Proposed Rule. The first is a clarification that paragraph 
(b)(5)(i)(B) was intended to require that, upon and following the 
effective date of the Section 15G Regulations, the Securitization Safe 
Harbor Rule requirements as to risk retention are satisfied if the 
governing documents of a securitization transaction require retention 
of an economic interest in the financial assets in accordance with the 
Section 15G Regulations, and that if the documentation satisfies this 
condition (and assuming all other conditions of the Securitization Safe 
Harbor Rule are satisfied), the transaction will not lose the benefits 
of the safe harbor solely on the basis of any non-compliance with the 
Section 15G Regulations risk retention requirements.
    The second is a clarification that paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule does not require that any action be 
taken with respect to issuances of asset-backed securities that close 
prior to the effective date of the Section 15G Regulations.

II. Discussion

    In the FDIC's view it is important to make clear to securitization 
market participants the date upon and after which the Securitization 
Safe Harbor will require reference to the Section 15G Regulations. In 
addition, the FDIC wants to eliminate possible confusion among market 
participants as to whether an asset-backed security issuance that 
complies with all requirements of the Securitization Safe Harbor Rule 
could forfeit the benefits afforded by the Securitization Safe Harbor 
Rule based on the action or inaction of a securitization sponsor or 
other party with respect to retention of credit risk following the date 
of such issuance. The Proposed Rule would clarify that, if the 
documents require compliance with the Section 15G Regulations, the 
benefits of the Securitization Safe Harbor Rule are not forfeited based 
solely upon non-compliance with these requirements. This is different 
from the Section 15G Regulations, under which non-compliance with the 
credit risk

[[Page 5078]]

retention requirements will constitute a violation of the Regulations.
    Accordingly, the Proposed Rule would revise paragraphs (b)(5)(i)(A) 
and (b)(5)(i)(B) of the Securitization Safe Harbor Rule to make the 
following three points clear:

    (i) In order to qualify for the benefits of the Securitization 
Safe Harbor Rule, the documents governing the issuance of asset-
backed securities in a securitization transaction must require 
retention of an economic interest in the credit risk of the 
financial assets relating to the securitization transaction in 
compliance with the Section 15G Regulations if such issuance occurs 
upon or following the date on which compliance with Section 15G is 
required for such type of securitization transaction;
    (ii) The Securitization Safe Harbor Rule does not require 
inquiry as to whether the sponsor or other applicable party in fact 
complies with the risk retention requirements of the documentation; 
and
    (iii) The Securitization Safe Harbor Rule requirements as to the 
Section 15G Regulations do not require changes to securitization 
documents governing asset-backed security issuances that are closed 
prior to the date on which compliance with Section 15G is required 
for such type of issuances.

The FDIC is proposing the clarifications described in points (ii) and 
(iii) above in recognition of the fact that the benefits afforded by 
the Securitization Safe Harbor Rule were intended to provide certainty 
to investors as to certain matters relating to the course of conduct by 
the FDIC as receiver or conservator of an insured depository 
institution with respect to financial assets transferred by such 
insured depository institution. It would be inconsistent with this goal 
if the treatment under the Securitization Safe Harbor Rule by the FDIC 
as receiver or conservator of an institution that transferred financial 
assets in connection with the issuance of such securities could be 
dependent on post-closing actions with respect to credit risk retention 
that are beyond the control of investors.

III. Request for Comment

    The FDIC invites comment from all members of the public on all 
aspects of the Proposed Rule. Comments are specifically requested on 
whether the Proposed Rule is consistent with the purposes of section 
360.6 and whether the results intended to be achieved by the Proposed 
Rule will be and should be achieved as set forth in the Proposed Rule 
or by way of different modifications to the Securitization Safe Harbor 
Rule. The FDIC will carefully consider all comments that relate to the 
Proposed Rule.

IV. Administrative Law Matters

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501, et 
seq.) (``PRA'') the FDIC may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The Proposed Rule would not revise the Securitization 
Safe Harbor Rule information collection 3064-0177 or create any new 
information collection pursuant to the PRA. Consequently, no submission 
will be made to the Office of Management and Budget for review. The 
FDIC requests comment on its conclusion that this NPR does not revise 
the Securitization Safe Harbor Rule information collection, 3064-0177.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires an 
agency to provide an Initial Regulatory Flexibility Analysis with a 
proposed rule, unless the agency certifies that the rule would not have 
a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 603-605. The FDIC hereby certifies that the Proposed 
Rule would not have a significant economic impact on a substantial 
number of small entities, as that term applies to insured depository 
institutions.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471) requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Proposed Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR Part 360

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Participations, Reporting and recordkeeping requirements, 
Savings associations, Securitizations.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend 12 CFR part 360 as 
follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

0
1. The authority citation for Part 360 continues to read as follows:

    Authority:  12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) 
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 
1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), 
1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-
73, 103 Stat. 357.

0
2. Revise Sec.  360.6 paragraph (a) Defiinitions by adding the 
definition ``Applicable compliance date'' as (a)(1) and redesignating 
the remaining definitions in numerical order to read as follows:


Sec.  360.6  Treatment of financial assets transferred in connection 
with a securitization or participation.

    (a) * * *
    (1) Applicable compliance date means, with respect to a 
securitization, the date on which compliance with Section 15G of the 
Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act is 
required with respect to that securitization.
* * * * *
0
3. Revise Sec.  360.6 paragraph (b)(5)(i) to read as follows:
    (i) Requirements applicable to all securitizations.
    (A) Prior to the applicable compliance date for regulations 
required under Section 15G of the Securities Exchange Act, 15 U.S.C. 
78a et seq., added by Section 941(b) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, the documents creating the 
securitization shall require that the sponsor retain an economic 
interest in a material portion, defined as not less than five (5) 
percent, of the credit risk of the financial assets. This retained 
interest may be either in the form of an interest of not less than five 
(5) percent in each of the credit tranches sold or transferred to the 
investors or in a representative sample of the securitized financial 
assets equal to not less than five (5) percent of the principal amount 
of the financial assets at transfer. This retained interest may not be 
sold, pledged or hedged, except for the hedging of interest rate or 
currency risk, during the term of the securitization.
    (B) For any securitization that closes upon or following the 
applicable compliance date for regulations required under Section 15G 
of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the documents creating the securitization shall instead require 
retention of an economic interest in the credit risk of the financial 
assets in accordance with such regulations, including the restrictions 
on sale, pledging and hedging set forth therein.
* * * * *

    Dated at Washington, DC, this 21st day of January, 2015.


[[Page 5079]]


    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015-01444 Filed 1-29-15; 8:45 am]
BILLING CODE 6714-01-P


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