FDIC Providing Safe Harbor for Securities

The Federal Deposit Insurance Corp. is reshaping its receivership policies and temporarily extending its hands-off approach on securitized mortgages and other loans when it takes over failed banks and thrifts. "It is fully appropriate and necessary to provide a transitional safe harbor" until March 31, FDIC chairman Sheila Bair said. Since 2000, FDIC has pledged not to reclaim securitized assets that qualify as sales and off-balance sheet assets under generally accepted accounting principles. But recent changes to accounting rules will force many institutions to consolidate private-label residential and commercial mortgage securities on their balance sheets starting Jan. 1. "The changes in accounting have changed the playing field," said FDIC vice chairman Martin Gruenberg. Going forward, FDIC will require securitizations to meet certain standards to qualify for the safe harbor. The FDIC Board will meet Dec. 15 to discuss and issue a set of conditions for public comment. These conditions will "support a structured finance process that does not create land mines for banks, investors and our financial system," Ms. Bair said.