[Federal Register Volume 80, Number 226 (Tuesday, November 24, 2015)]
[Rules and Regulations]
[Pages 73087-73090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29822]



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 Rules and Regulations
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  Federal Register / Vol. 80, No. 226 / Tuesday, November 24, 2015 / 
Rules and Regulations  

[[Page 73087]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AE32


Treatment of Financial Assets Transferred in Connection With a 
Securitization or Participation

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (the ``FDIC'') is 
issuing a final rule (the ``Final Rule'') that revises certain 
provisions of its securitization safe harbor rule, which relates to the 
treatment of financial assets transferred in connection with a 
securitization or participation, in order to clarify the requirements 
of the securitization safe harbor as to the retention of an economic 
interest in the credit risk of securitized financial assets in 
connection with the effectiveness of the credit risk retention 
regulations adopted under Section 15G of the Securities Exchange Act.

DATES: Effective January 25, 2016.

FOR FURTHER INFORMATION CONTACT:  Phillip E. Sloan, Counsel, Legal 
Division (703) 562-6137; or George H. Williamson, Manager, Division of 
Resolutions and Receiverships (571) 858-8199.

SUPPLEMENTARY INFORMATION:

I. Background

    The Federal Deposit Insurance Corporation (FDIC), in regulations 
codified at 12 CFR 360.6 (the Securitization Safe Harbor Rule), set 
forth criteria under which in its capacity as receiver or conservator 
of an insured depository institution the FDIC will not, in the exercise 
of its authority to repudiate contracts, recover or reclaim financial 
assets transferred in connection with securitization transactions. 
Asset transfers that, under the Securitization Safe Harbor Rule, are 
not subject to recovery or reclamation through the exercise of the 
FDIC's repudiation authority include those that pertain to certain 
grandfathered transactions, such as, for example, asset transfers made 
prior to December 31, 2010 that satisfied the conditions (except for 
the legal isolation condition addressed by the Securitization Safe 
Harbor Rule) for sale accounting treatment under generally accepted 
accounting principles (GAAP) in effect for reporting periods prior to 
November 15, 2009 and that pertain to a securitization transaction that 
satisfied certain other requirements. In addition, the Securitization 
Safe Harbor Rule provides that asset transfers that are not 
grandfathered, but that satisfy the conditions (except for the legal 
isolation condition addressed by the Securitization Safe Harbor Rule) 
for sale accounting treatment under GAAP in effect for reporting 
periods after November 15, 2009 and that pertain to a securitization 
transaction that satisfies all other conditions of the Securitization 
Safe Harbor Rule (such asset transfers, together with grandfathered 
asset transfers, are referred to collectively as Safe Harbor Transfers) 
will not be subject to FDIC recovery or reclamation actions through the 
exercise of the FDIC's repudiation authority. For any securitization 
transaction in respect of which transfers of financial assets do not 
qualify as Safe Harbor Transfers but which transaction satisfies all of 
its other requirements, the Securitization Safe Harbor Rule provides 
that, in the event the FDIC as receiver or conservator remains in 
monetary default for a specified period under a securitization due to 
its failure to pay or apply collections or repudiates the 
securitization asset transfer agreement and does not pay damages within 
a specified period, certain remedies can be exercised on an expedited 
basis.
    Paragraph (b)(5)(i) of the Securitization Safe Harbor Rule sets 
forth the conditions relating to credit risk retention that apply to 
transfers of financial assets in connection with securitizations that 
are not grandfathered by the Securitization Safe Harbor Rule. Under 
paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule as 
currently in effect, prior to the effective date of regulations 
required under Section 15G of the Securities Exchange Act, 15 U.S.C. 
78a et seq. (``Section 15G''), the documents governing such 
securitization must require that the sponsor retain an economic 
interest in not less than five (5) percent of the credit risk of the 
financial assets relating to the securitization. The requirement in 
paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule, that the 
documents require retention of an economic interest, is consistent with 
many other provisions of the Securitization Safe Harbor Rule, which are 
similarly expressed as requirements for the securitization 
documentation, rather than as conditions requiring actual compliance 
with the provision that is required to be included in the 
documentation. As currently in effect, paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule does not explicitly refer to the 
securitization documentation, but provides that, upon the effective 
date of the regulations required under Section 15G (the Section 15G 
Regulations), such regulations shall exclusively govern the requirement 
to retain an economic interest in the credit risk of the financial 
assets.
    Section 15G provides that regulations issued thereunder become 
effective with respect to residential mortgage securitizations one year 
after the date on which the regulations are published in the Federal 
Register and, with respect to all other securitizations, two years 
after such publication date. The Section 15G Regulations were published 
in the Federal Register at 79 FR 77602 on December 24, 2014. The 
Federal Register publication of the Section 15G Regulations specifies 
``compliance dates'' that correspond to these effective dates. However, 
the Federal Register publication also specifies February 23, 2015 as 
the ``effective date'' of the Section 15G Regulations in accordance 
with Federal Register editorial conventions, which require that a 
Federal Register publication specify as the effective date the date on 
which a rule affects the current Code of Federal Regulations.\1\
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    \1\ See 79 FR 77602 (December 24, 2014).
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    In connection with the notice of proposed rulemaking relating to 
the Section 15G Regulations, FDIC staff received a comment that 
suggested that

[[Page 73088]]

certain other points relating to paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule should be clarified.
    On January 30, 2015, the FDIC published a notice of proposed 
rulemaking relating to the Securitization Safe Harbor Rule (the 
``NPR''). The NPR was designed, in part, to eliminate any confusion 
that might be created by the use of ``effective date'' in the Section 
15G Regulations Federal Register publication and to clarify when 
compliance with paragraph (b)(5)(i)(B) of the Securitization Safe 
Harbor Rule is required. In addition, the NPR included a proposed rule 
(the Proposed Rule) that addressed two of the points raised by the 
commenter.\2\ The first is a clarification that paragraph (b)(5)(i)(B) 
was intended to require that, upon and following the applicable 
effective date under the Section 15G Regulations (such applicable 
effective dates (December 24, 2015 for residential mortgage 
securitizations and December 24, 2016 for all other securitizations) 
are referred to as the applicable compliance dates), the Securitization 
Safe Harbor Rule requirements as to risk retention are satisfied if the 
governing documents of a securitization transaction require retention 
of an economic interest in the financial assets in accordance with the 
Section 15G Regulations, and that if the documentation satisfies this 
condition (and assuming all other conditions of the Securitization Safe 
Harbor Rule are satisfied), the transaction will not lose the benefits 
of the safe harbor solely on the basis of any non-compliance with the 
Section 15G Regulations risk retention requirements.
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    \2\ 80 FR 5076 (January 30, 2015).
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    The second is a clarification that paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule does not require that any action be 
taken with respect to issuances of asset-backed securities that close 
prior to the applicable compliance date of the Section 15G Regulations.
    These two clarifications, which were included in the Proposed Rule, 
together with an additional change suggested by a comment letter 
relating to the Proposed Rule, are included in the Final Rule.

II. Comment Received on the Proposed Rule

    The FDIC received one comment letter, from an industry trade 
association, in response to the Proposed Rule. This letter supported 
the changes included in the Proposed Rule and requested that the Final 
Rule include one additional change relating to the credit risk 
retention condition of the Securitization Safe Harbor Rule. The 
commenter referred to the applicable compliance dates for the Section 
15G Regulations and proposed that the Final Rule provide securitization 
sponsors the option, with respect to a securitization transaction, to 
comply with the credit risk retention condition of the Securitization 
Safe Harbor Rule by adopting the Section 15G risk retention 
requirements during the period preceding the applicable compliance date 
for such transaction, even though the Section 15G Regulations do not 
require such compliance before such applicable compliance date. The 
commenter stated that providing such optionality ``would effectuate the 
principle underlying the credit risk retention condition of the 
Securitization Safe Harbor Rule.'' \3\
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    \3\ Letter dated March 30, 2015, p. 3.
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III. Policy Objective

    The policy objective underlying the Final Rule is to create 
certainty and eliminate unnecessary burdens in connection with the 
transition to the Section 15G Regulations requirements as to credit 
risk retention.

IV. The Final Rule

Overview

    The Final Rule clarifies that the Securitization Safe Harbor Rule 
condition relating to credit risk retention requires that the documents 
governing a securitization transaction that closes on or after the 
applicable compliance date under the Section 15G Regulations must 
require that an economic interest in the credit risk of the financial 
assets is retained in accordance with the Section 15G Regulations. The 
Final Rule provision effecting this clarification also makes clear that 
the migration of the Securitization Safe Harbor Rule to the Section 15G 
Regulations governing credit risk retention will not require changes to 
documents governing securitizations that closed prior to the applicable 
compliance date. The provision also makes clear that the transition to 
the Section 15G standard is a documentation requirement and, thus, does 
not put investors at risk if a securitization sponsor, in violation of 
transaction documents, does not retain credit risk in accordance with 
the Section 15G Regulations.
    Because securitization investors have relied on the Securitization 
Safe Harbor Rule to obtain an understanding of how the FDIC might 
exercise its powers if it is appointed receiver or conservator for an 
insured depository institution which transferred assets in connection 
with a securitization transaction, the FDIC believes that it is 
important to make clear to securitization market participants the date 
upon and after which the Securitization Safe Harbor will require 
reference to the Section 15G Regulations. In addition, the FDIC wants 
to eliminate possible confusion among market participants as to whether 
an asset-backed security issuance that complies with all requirements 
of the Securitization Safe Harbor Rule could forfeit the benefits 
afforded by the Securitization Safe Harbor Rule based on the action or 
inaction of a securitization sponsor or other party with respect to 
retention of credit risk following the date of such issuance. This is 
different from the Section 15G Regulations, under which non-compliance 
with the credit risk retention requirements will constitute a violation 
of the Regulations.
    Consistent with the clarifications to the process for migration to 
the Section 15G Regulations included in the Proposed Rule, the Final 
Rule follows the commenter's suggestion and permits securitization 
sponsors to comply with the credit risk retention requirements of the 
Securitization Safe Harbor Rule by opting in the securitization's 
governing documents to require compliance with the Section 15G 
Regulations earlier than required by the Section 15G Regulations. It is 
the FDIC's view that since the Securitization Safe Harbor Rule has 
always required the transition to the Section 15G risk retention 
requirements, there is no compelling reason to require that 
securitization sponsors await the applicable compliance date in order 
to use one of the risk retention methods available under the Section 
15G Regulations. In following the commenter's proposal, the FDIC wished 
to avoid imposing unnecessary burdens on sponsors that otherwise might 
need to establish a securitization structure for the issuance of 
multiple series before the applicable compliance date and then need to 
amend the structure after the applicable compliance date. The FDIC sees 
no reason to require such extra expense. The FDIC recognizes that 
permitting securitization sponsors to cause a securitization 
transaction to comply with the Securitization Safe Harbor Rule by 
exercising an option to require compliance with the Section 15G 
Regulations before the applicable compliance date also has the effect 
of allowing greater flexibility with respect to risk retention for 
purposes of complying with the Securitization Safe

[[Page 73089]]

Harbor Rule, and in some cases may permit sponsors to benefit from 
exemptions available under the Section 15G Regulations earlier than 
otherwise would be the case for purposes of the Securitization Safe 
Harbor Rule. In promulgating the Section 15G Regulations, the FDIC 
determined that the approach to risk retention adopted by those rules 
is effective and appropriate and, thus, the option of early adoption 
also is appropriate.

Section-by-Section Analysis

Definitions
    The Final Rule adds a new definition, ``applicable compliance 
date'' to paragraph (a) of the Securitization Safe Harbor Rule. This 
definition reflects that the Section 15G Regulations impose two dates 
for compliance: December 24, 2015 for securitization of residential 
mortgages, and December 24, 2016 for all other securitizations.
Paragraph (b)(5)(i)
    The Final Rule revises paragraph (b)(5)(i) of the Securitization 
Safe Harbor Rule to make the following three points clear:
    (i) In order to qualify for the benefits of the Securitization Safe 
Harbor Rule, the documents governing the issuance of asset-backed 
securities in a securitization transaction must require retention of an 
economic interest in the credit risk of the financial assets relating 
to the securitization transaction in compliance with the Section 15G 
Regulations if such issuance occurs upon or following the date on which 
compliance with Section 15G is required for such type of securitization 
transaction;
    (ii) The Securitization Safe Harbor Rule does not require inquiry 
as to whether the sponsor or other applicable party in fact complies 
with the risk retention requirements of the documentation; and
    (iii) The Securitization Safe Harbor Rule requirements as to the 
Section 15G Regulations do not require changes to securitization 
documents governing asset-backed security issuances that are closed 
prior to the applicable compliance date under the Section 15G 
Regulations.
    In addition, the Final Rule revises paragraph (b)(5)(i) of the 
Securitization Safe Harbor Rule to permit a securitization transaction, 
that closes between the date of the publication of the Final Rule in 
the Federal Register and the applicable compliance date related to such 
securitization transaction, to comply with the paragraph if the 
documents creating the securitization require retention of an economic 
interest in the credit risk of the financial assets in accordance with 
the requirements of the Section 15G Regulations as though such 
Regulations were then in effect. In the case of a securitization 
transaction of an entity established to issue obligations in more than 
one securitization transaction, the election to require in the 
documents creating the securitization transaction that risk be retained 
in accordance with the Section 15G Regulations can be set forth either 
in the specific securitization transaction documents or, provided that 
it governs the securitization transaction, in one of the documents 
establishing or otherwise governing the issuing entity.

V. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    This rule would entail an information collection for sponsors that 
exercise the option to become subject to the Section 15G Regulations 
earlier than otherwise required. Because the information to be 
collected is the same, however, as that encompassed by the collection 
of information that was approved under OMB No. 3064-0183, no new 
submission is being made to OMB with respect to the Paperwork Reduction 
Act (44 U.S.C. 3501, et seq.).\4\
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    \4\ The specific method of defining the respondent population 
differed in some respects for purposes of the FDIC's Section 15G PRA 
submission, OMB No. 3064-0183. The respondent population for that 
submission was based on an allocation to the bank regulatory 
agencies based on the number of sponsors regulated by them, with the 
remainder of sponsors allocated to the Securities and Exchange 
Commission. The allocation to the bank regulatory agencies was then 
divided among the FDIC and the other bank regulatory agencies. The 
respondents for purposes of this Rule are IDIs that are projected to 
sponsor securitizations and elect to comply early with the Section 
15G Regulations, and the number of responses is based on the 
projected number of securitizations for which those sponsors would 
be expected to elect the early compliance option.
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B. Regulatory Flexibility Act

    The Regulatory Flexibility Act 5 U.S.C. 601, et seq. (RFA) requires 
each federal agency to prepare a final regulatory flexibility analysis 
in connection with the promulgation of a final rule, or certify that 
the final rule will not have a significant economic impact on a 
substantial number of small entities.\5\ Pursuant to section 605(b) of 
the Regulatory Flexibility Act, the FDIC certifies that the Final Rule 
will not have a significant economic impact on a substantial number of 
small entities.
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    \5\ See 5 U.S.C. 603, 604 and 605.
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C. Small Business Regulatory Enforcement Act

    The Office of Management and Budget has determined that the Final 
Rule is Not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), (5 U.S.C. 801 et 
seq.). As required by the SBREFA, the FDIC will file the appropriate 
reports with Congress and the Government Accountability Office so that 
the Final Rule may be reviewed.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat.1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Final Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR Part 360

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Participations, Reporting and recordkeeping requirements, 
Savings associations, Securitizations.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation amends 12 CFR part 360 as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

0
1. The authority citation for part 360 continues to read as follows:

    Authority:  12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) 
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 
1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), 
1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-
73, 103 Stat. 357.

0
2. Amend Sec.  360.6 as follows:
0
a. Redesignate paragraphs (a)(1) through (11) as (a)(2) through (12) 
and add a new paragraph (a)(1).
0
b. Revise paragraph (b)(5)(i).
    The addition and revision read as follows:


Sec.  360.6  Treatment of financial assets transferred in connection 
with a securitization or participation.

    (a) * * *
    (1) Applicable compliance date means, with respect to a 
securitization, the date on which compliance with Section 15G of the 
Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act is 
required with respect to that securitization.
* * * * *
    (b) * * *
    (5) * * *
    (i) Requirements applicable to all securitizations. (A) Prior to 
the

[[Page 73090]]

applicable compliance date for regulations required under Section 15G 
of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the documents creating the securitization shall require that the 
sponsor retain an economic interest in a material portion, defined as 
not less than five (5) percent, of the credit risk of the financial 
assets. This retained interest may be either in the form of an interest 
of not less than five (5) percent in each of the credit tranches sold 
or transferred to the investors or in a representative sample of the 
securitized financial assets equal to not less than five (5) percent of 
the principal amount of the financial assets at transfer. This retained 
interest may not be sold, pledged or hedged, except for the hedging of 
interest rate or currency risk, during the term of the securitization.
    (B) For any securitization that closes upon or following the 
applicable compliance date for regulations required under Section 15G 
of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the documents creating the securitization shall instead require 
retention of an economic interest in the credit risk of the financial 
assets in accordance with such regulations, including the restrictions 
on sale, pledging and hedging set forth therein.
    (C) Notwithstanding paragraph (b)(5)(i)(A) of this section, for any 
securitization that closes following ________ November 24, 2015 and 
prior to the applicable compliance date for regulations required under 
Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., 
added by Section 941(b) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, at the option of the sponsor, the requirements 
of paragraph (b)(5)(i)(B) of this section may be satisfied if (in lieu 
of the requirement set forth in paragraph (b)(5)(i)(A) of this section) 
the documents creating the securitization require retention of an 
economic interest in the credit risk of the financial assets in 
accordance with the requirements of the Section 15G regulations as 
though such regulations were then in effect.
* * * * *

    Dated at Washington, DC, this 22nd day of October, 2015.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015-29822 Filed 11-23-15; 8:45 am]
 BILLING CODE 6714-01-P