The proposal was announced at a meeting held on Tuesday, during which FDIC said it would double its budget allocation for dealing with failed banks and add an additional 1,600 staffers. Specifically it is called an Advanced Notice of Proposed Rulemaking--an initial step that is followed by a more detailed report after a comment period. At that point the Commissioners will vote on it.
The rules aim to step up consumer protections, which Chairperson Sheila Bair said are eroded by securitization practices. Among other items, suggests that originators maintain a 5% stake in the credit risk of the loan. That percentage, though, is up for debate, depending on the asset class and size of the securitization. If the proposal is passed, banks that followed it wouldn't have the assets bundled in the securitization seized by FDIC in case of bankruptcy.
Whether this proposal becomes official policy will depend on several factors, including the final shape of the Consumer Finance Protection Agency. It is unlikely that FDIC would have in place more rigorous requirements than the federal standard. The House passed its version of the Act mandating the CFPC last week. Movement in the Senate is not expected until next year.
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