On February 9, the Fed approved a final rule, as required by the Dodd-Frank Act, implementing the conformance period during which banking entities and nonbank financial companies supervised by the Fed must bring their activities and investments into compliance with the Volcker Rule. The final rule will become effective on April 1. Fed Release. Final Rule.
Month: February 2011
FDIC Rule on Assessments, Dividends, Assessment Base, and Large Bank Pricing
On February 7, the FDIC approved a final rule on assessments, dividends, assessment base, and large bank pricing. The rule implements changes to the deposit insurance assessment system, as required by the Dodd-Frank Act, and revises the assessment system applicable to large banks to eliminate reliance on debt issuer ratings and make it more forward looking. FDIC Release.
FDIC Approves Proposal for Incentive-Based Compensation
On February 7, the FDIC approved a joint proposed rulemaking to implement Section 956 of the Dodd-Frank Act. Section 956 prohibits incentive-based compensation arrangements that encourage inappropriate risk-taking by covered financial institutions and are deemed to be excessive or that may lead to material losses. Comments must be submitted within 45 days after publication in the Federal Register. FDIC Release. Proposed Rule.
New York Appellate Court Dismisses MBIA v. Merrill
On February 1, 2011, the Appellate Division of the Supreme Court of the State of New York dismissed MBIA Insurance Corp’s claim for breach of contract against Merrill Lynch concerning 11 credit default swap contracts on four CDOs whose collateral consisted largely of RMBS. MBIA alleged that it was induced to provide credit protection on the CDOs based on misrepresentations as to the quality of the CDOs’ collateral, the degree of credit protection on the insured tranches, the credit ratings of the insured tranches, and the default rates for comparable CDOs. MBIA originally brought a variety of claims sounding in fraud, negligent misrepresentation, breach of contract, and a breach of the covenant of good faith and fair dealing, and sought rescission of the CDS contracts and money damages. The trail court dismissed all but the breach of contract claim, which the Appellate Division has now unanimously dismissed on appeal. First Department Decision. New York County Supreme Court Decision.
RMBS Complaint Filed Against Countrywide in Connecticut
On January 27, 2011, Putnam Bank filed a putative class action in the District of Connecticut accusing Countrywide Financial Corp. (now an affiliate of Bank of America) and several executives of selling RMBS backed by materially false statements and omissions. The putative class covers purchasers and acquirers of eight different series of RMBS certificates issued between 2006 and 2007. Plaintiffs seek compensatory and/or recessionary damages under both Federal and Connecticut Securities laws. Complaint.
New York Lawmakers Schedule Hearing Regarding Representations and Warranties Made by Mortgage Originators on Residential Mortgage Backed Securities
The New York State Assembly recently scheduled a public hearing to investigate representations and warranties made by mortgage originators and other financial institutions concerning residential mortgage backed securities and other securitized debt transactions. During the hearing, the Assembly’s Standing Committee on Insurance will elicit testimony regarding claimed misrepresentations and the impact of those claimed misrepresentations on monoline insurers and other third parties. The Committee will also consider whether legislation is needed to protect third parties who insured or have direct exposure to RMBS. The hearing is scheduled for February 16, 2011. Persons wishing to be heard at the hearing have until February 9 to submit the Public Hearing Reply Form. Notice of Public Hearing and Public Hearing Reply Form.
Rating Agency Developments
On February 4, Fitch published global rating criteria for non-performing loan securitizations. Fitch Release. Fitch Report.
On February 3, Moody’s updated its approach to rating wireless towers-backed securitizations. Moody’s Report.
On February 2, Fitch published an exposure draft introducing its new rating model for determining losses on pools of newly originated U.S. residential loans. Fitch Release.
On January 31, Fitch published a report on U.S. residential and small balance commercial mortgage servicer rating criteria. Fitch Release. Fitch Report.
Note: Free registration is required for Fitch and Moody’s releases and reports.
Fed Will Not Finalize Reg Z Rulemakings
On February 1, the Fed announced that it does not expect to finalize three pending mortgage lending rulemakings under Regulation Z, which implements the Truth in Lending Act (TILA), prior to the transfer of authority for such rulemakings to the Consumer Financial Protection Bureau in July 2011. Fed Release.
SEC Releases MMF Portfolio and “Shadow NAV” Information
On January 31, the SEC announced that investors can now access detailed information that money market funds file with the SEC on EDGAR, including investment information and the market-based price of its portfolio, known as its “shadow NAV” (net asset value) or mark-to-market valuation. SEC Release.
SEC Proposed Rule for Security-Based Swap Execution Facilities
On February 2, the SEC proposed rules defining security-based swap execution facilities and establishing their registration requirements, duties and core principles. The proposed rules would also establish the process for security-based swap execution facilities to file rule changes and new products with the SEC and exempt security-based swap execution facilities from the definition of “exchange” and from most regulation as brokers. Comments on the proposed rules must be submitted by April 4. SEC Release.