FDIC to Clarify Policy on Covered Bonds

The Federal Deposit Insurance Corp. is working on a policy statement to clarify how it would deal with covered bonds in a failed bank situation so investors are comfortable holding these instruments, which provide lenders with an alternative way to finance their mortgage lending operations. "FDIC wants to bring certainty to the process and lower the cost of issuing covered bonds," agency spokesman Andrew Gray said. Several U.S. banks have issued covered bonds collateralized by mortgages in European markets that have become concerned about FDIC pay-off policies. The FDIC generally has 90 days to decide how to deal with the assets and liabilities when a bank or thrift fails. The policy statement would clarify that the FDIC intends to shorten the period significantly "so there would be the assurance that it wouldn't spread out over three months," the agency spokesman said. The FDIC wants to issue the policy statement in April for public comment so it can go into effect in late summer.