FDIC to Decide Securitized-Loan Rule

By Joe Adler


The Federal Deposit Insurance Corp. is ready to clarify today how it will treat securitized assets at a failed bank — a move that would have significant implications for investors if the agency laid claim to such assets. Under current policy, the FDIC does not touch assets that a failed bank has isolated from its books through securitization. But starting next year, an accounting rule change will force banks to move these assets back on the balance sheet, raising questions about how the FDIC will adjust its policy. The implications are potentially dramatic; investors would be expected to rethink their participation in such securitizations if they feared the FDIC would later take them. “Asset-backed securitization is premised on investors’ rights to the underlying asset in the event the payments of principal and interest cease,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. “They need to make clear they will not exert receivership rights over the underlying collateral in the asset-backed securities, or they’ll shoot securitization in the head.”