On January 21, President Obama proposed restrictions to limit the size and scope of financial institutions which would be part of a comprehensive financial reform bill that would authorize regulators to restrict or prohibit large firms from engaging in “risky” activities and attempt to safeguard taxpayers. White House Release.
Month: January 2010
FDIC and BOE Cooperation in Resolving Troubled Cross-Border Banks
On January 22, the FDIC and the Bank of England announced their agreement to a memorandum of understanding expanding their cooperation in resolving troubled deposit-taking institutions with activities in the U.S. and the United Kingdom. Release. Memorandum of Understanding.
Regulatory Capital Standards and FAS 166/167
On January 21, in a joint release, the FDIC, the Fed, the OCC, and the OTS announced the final risk-basked capital rule related to FAS 166 and 167. The rule is intended to better align risk-based capital requirements with the actual risks of certain exposures and provides an optional phase-in for four quarters of the impact on risk-weighted assets and tier 2 capital resulting from a banking organization’s implementation of FAS 166 and 167. The rule will take effect 60 days after its publication in the Federal Register. Banking organizations may elect to comply with the final rule as of the beginning of their first annual reporting period after November 15, 2009. Joint Release. Final Rule.
Monthly TALF Funding Requests
The graph below displays the monthly progression of TALF funding requests for non-CMBS asset classes. For individual graphs showing the monthly requests for each asset class, please click here.
Rating Agency Developments
On January 7, Moody’s published its approach to rating RMBS servicer advance facilities. The rating criteria include: (i) review of the servicer, including assessments of its advance and reimbursement tracking systems and organizational infrastructure, (ii) utilization of servicer-specific historical data on advance reimbursements to determine appropriate stress scenarios and credit risk, (iii) assessment of whether the receivables backing the servicer advance facility are isolated from the bankruptcy risk of the servicer, and (iv) consideration of whether there is a clear alignment of interest between the servicer and the investors. Moody’s Report.
On January 8, Moody’s issued a new report for rating U.S. floorplan ABS. Under this approach, Moody’s uses a model to simulate losses based on outcomes related to key risk drivers such as manufacturer or dealer default, payment rates, and economic conditions, supplemented by a static scenario analysis for manufacturers with sub-investment grade ratings, to assess whether Aaa bonds will be resilient to downgrades below investment grade in highly stressed scenarios. Moody’s also evaluates qualitative factors including the capability and stability of the loan servicer. Moody’s Release. Moody’s Report.
On January 8, Moody’s explained its approach to rating securitizations backed by U.S. private student loans. Moody’s notes that since private student loans do not benefit from a federal guarantee and instead rely on the borrowers’ and co-signers’ credit for repayment, the methodology for rating private student loan securitizations differs significantly from those involving federally insured loans. Moody’s Release. Moody’s Report.
On January 12, Moody’s changed its approach to monitoring credit arbitrage ABCP programs. The changes are incorporated in the latest version of its public CDO rating model, CDOROM. Moody’s Release.
On January 13, Moody’s published updates to its methodology on variable rate instruments supported by third party liquidity providers. The changes include updates to the immediate termination or suspension events section of the methodology and effect the assignment of short-term ratings to variable rate demand obligations and commercial paper. Moody’s Report.
On January 13, Moody’s published revised loss projections for some U.S. subprime RMBS issued between 2005 and 2007. Moody’s Release.
Note: Free registration is required for all rating agency releases and reports.
ASF Ends Affiliation With SIFMA
On January 14, the ASF announced that its Board of Directors voted to end the ASF’s administrative affiliation with SIFMA. ASF Release.
Revised Policy for Administration of Primary Dealers
On January 11, the New York Fed published a revised policy on the administration of primary dealer relationships for existing and prospective primary dealers. Changes to the policy include: (i) a more structured presentation of the standards expected of a primary dealer, (ii) a more formal application process for prospective primary dealers, (iii) an increase in the minimum net capital requirement from $50 million to $150 million, (iv) a seasoning requirement of one year of relevant operations before a prospective primary dealer may apply, and (v) a clear notice of possible sanctions in the event of noncompliance. Release. Revised Policy. FAQs.
SEC Seeks Comment on Structure of Equity Markets
On January 13, the SEC issued a concept release seeking public comment on all matters relating to market structure, including: (i) market quality metrics, (ii) fairness of market structure, (iii) high frequency trading, (iv) co-location, and (v) dark liquidity. Comments must be received within 90 days of the publication of the concept release in the Federal Register. SEC Release.
SEC Policy Statement On Cooperation With Enforcement Action Investigations
On January 13, the SEC announced measures to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions. The new initiative establishes incentives for individuals and companies to cooperate and assist with SEC actions and provides new tools to help investigators develop first-hand evidence to build cases. SEC Release. Orrick Client Alert.
Obama Proposes Financial Crisis Responsibility Fee
On January 14, President Obama proposed a Financial Crisis Responsibility Fee to be imposed on financial firms in order to recoup the projected $117 billion cost of TARP. The fee will be in place for 10 years, or longer if necessary to fully repay TARP. Only firms with more than $50 billion in consolidated assets will be subject to the fee. Covered institutions include U.S. firms, and U.S. subsidiaries of foreign firms, that were insured depository institutions, bank holding companies, thrift holding companies, insurance or other companies that owned insured depository institutions, or securities broker-dealers as of January 14, or that become one of these types of firms after January 14. White House Release. Financial Crisis Responsibility Fee Fact Sheet.