Feds Mitigate Impact of Consolidating Securitizations

Federal regulators have finalized a transition rule to cushion banks from the capital impact of consolidating mortgage securitizations on their balance sheets. The final rule provides a one-year transition period for the adoption of Financial Accounting Standards 166 and 167 which went into effect Jan. 1. "It provides an optional phase-in for four quarters," federal banking regulators said. Banks can exclude consolidated assets from risk-based capital calculations during the first two quarters of 2010. Over the third and fourth quarters, banks only have to count 50% of the consolidated assets for RBC purposes. Institutions that participated in the issuance of private-label residential and commercial mortgage-backed securities will be most affected by the FAS 166 and 167. On Jan. 1, Wells Fargo consolidated $10 billion in securitized assets on its balance sheet, including $5 billion in nonconforming residential mortgages. The company said it resulted in a 4 basis point decline in its total capital ratio.