Split vote finalizes removal of disclosure requirement in securitization safe harbor

A final rule removing a disclosure requirement by amending the “safe harbor” for financial assets transferred in connection with a securitization transaction was approved by the board for the federal insurer of bank deposits Thursday, but on a split vote of 3-1.

The final rule eliminates a requirement that securitization documents used by insured institutions comply with regulation AB of the Securities and Exchange Commission where the regulation by its terms would not apply to the issuance of obligations backed by such financial assets.

The final rule amends FDIC regulations adopted in 2010, in particular with regard to residential mortgage-backed securities (RMBS).

The FDIC said the policy objective of the final rule is to remove an unnecessary barrier to securitization transactions (especially RMBS). It removes a disclosure requirement established by the 2010 rule.

In voting against issuing the final rule (which had been subject to a 90-day comment period when proposed in July), Board Member Martin Gruenberg said the disclosures formerly required by the rules were intended to “enable investors to exercise effective due diligence and serve as a discipline on the marketplace for residential mortgage backed securities.”

“They are a valuable complement to the reforms that have been cited. Prudence, and hard experience, would suggest that they be maintained,” Gruenberg said.

Gruenberg observed that the country has yet to experience an economic downturn since the end of the financial crisis 10 years ago. “As a result, we have not yet even tested these reforms through an economic cycle,” he said, referring to the rule adopted in 2010 and amended by the board’s action Thursday.

Final rule: Amendment to Securitization Safe Harbor Rule