Rating Agency Developments

On December 16, S&P published its revised methodology for rating U.S. tax lien securitizations. S&P Release.

On December 16, S&P published its revised methodology and assumptions for assessing asset-liability mismatch risk in covered bond programs. S&P Release.

On December 14, DBRS published its proposed rating methodology for U.S. auto lease ABS transactions. Comments to the proposed methodology are requested by January 14, 2010. DBRS Release.

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SEC Extends Filing Accommodation for Static Pool Information

On December 15, the SEC adopted an amendment to Rule 312 of Regulation S-T to extend the rule’s application through December 31, 2010. Under the rule, ABS issuers can fulfill the requirement that static pool information be disclosed in a prospectus included in a registration statement by providing the information on the issuer’s website. Final Rule.

Resiliency

On December 17, the Basel Committee on Banking Supervision released proposals to strengthen the resiliency of the banking sector. The proposed changes include: (i) the introduction of new standards for liquidity risk management, (ii) the addition of a leverage ratio to the Basel II framework, (iii) improvements to the quality and consistency of capital, and (iv) strengthening capital requirements for counterparty credit risk. Comments are requested by April 16, 2010.  Fed Release.

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FDIC Final Rule on Regulatory Capital

On December 16, the FDIC finalized the regulatory capital rule related to FAS 166 and 167 which provides for: (i) an optional delay and phase-in for up to one year of the effect on risk-based capital and the allowance for lease and loan losses related to the assets that must be consolidated as a result of the accounting change and (ii) an elimination of the risk-based capital exemption for ABCP assets. FDIC Release.

House Passes Financial Regulation Bill

On December 11, the House of Representatives approved the Wall Street Reform and Consumer Protection Act of 2009, a plan to significantly tighten federal regulation of the financial sector. Among other things, the plan creates a new agency to oversee consumer lending, establishes new rules for transactions that contributed to the meltdown, and seeks to reduce the threat that one or two huge companies on the verge of collapse could bring down the economy. House Financial Services Committee Release.  Wall Street Reform and Consumer Protection Act of 2009 (HR 4173).

Statement of Comptroller Dugan on FDIC Rule on Securitizations

On December 15, Comptroller of the Currency John Dugan issued a statement in support of the FDIC’s Advance Notice of Proposed Rulemaking regarding the regulation of securities backed by loans and leases. Dugan presented several concerns about the proposed rule but favors pushing the process forward to stimulate robust comment on the issues. OCC Release.

FDIC Proposed Rulemaking for Safe Harbor Protection for Securitizations

On December 15, the FDIC approved an Advance Notice of Proposed Rulemaking to solicit comments for amendments to regulations which govern the treatment by the FDIC, as conservator or receiver, of financial assets transferred by an insured depository institution in a securitization or participation. The potential amendments would create a safe harbor to confirm legal isolation of assets transferred by a bank in a securitization or participation if certain conditions are satisfied, and are in response to FAS 166 and FAS 167 which will result in GAAP consolidation for many securitizations and thus cause the FDIC’s existing safe harbor to no longer apply.  Comments are requested within 45 days of publication of the Advance Notice in the Federal Register.  FDIC Release.  Advance Notice.  Orrick Alert.

Rating Agency Developments

On December 7, Fitch revised surveillance criteria for rating CDOs exposed to corporate debt. Fitch Release.

On December 9, S&P published methodology for analyzing rating confirmation requests for amendments to CDO documents which would allow subsidiary SPEs to be formed to hold equity securities received as part of a workout. S&P Release.

On December 10, S&P announced that it will no longer rate obligations with variable principal payments linked to commodity prices, equity prices, or indices linked to either commodity or equity prices. S&P Release.

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Treasury Outlines Extension of and Exit Strategy for TARP

On December 9, Treasury Secretary Geithner outlined the Administration’s exit strategy for TARP. Geithner highlighted four elements of the strategy: (i) extending TARP until October 3, 2010 to maintain an adequate financial stability reserve, (ii) continuing to terminate and wind down government programs enacted to address the economic crisis, (iiii) managing equity investments acquired through the Emergency Economic Stabilization Act, and (iv) limiting new commitments in 2010 to: (a) foreclosure mitigation programs, (b) initiatives to provide capital to small and community banks, and (c) the expansion of TALF. Treasury Release.