FDIC Urged to Relax Covered Bond Standards

The Financial Services Roundtable is urging the Federal Deposit Insurance Corp. to follow the European model and relax its mortgage underwriting standards if it wants to jump-start a market for U.S. covered bonds. Specifically, the Roundtable is urging the FDIC to drop the conservative eligibility requirements for mortgages that can be used as collateral for covered bonds and provide more flexibility to use existing whole mortgages and mortgage-backed securities. Otherwise, it would take years for banks and thrifts to build mortgage portfolios that meet the eligibility requirements, and the fledging U.S. covered bond market would "wither," FSR president and chief executive Steve Bartlett says in a comment letter. The comment period on the FDIC's interim policy statement on covered bonds ended June 23, and many community banks expressed concerns that the agency might impose a deposit insurance surcharge on covered bonds and other secured liabilities like Federal Home Loan Bank advances. The Independent Community Bankers of America generally supports the policy statement, but "strongly disagrees with including any secured liabilities and particularly FHLBank advances as part of an institution's assessment base," the trade group says.