Accountancy Changes Could Reduce ABS Issuance: DBRS
Accountancy rule changes under the Financial Accounting Standards Board (FASB) could lead to reduced securitization issuance volume in certain asset classes, according to independent rating agency DBRS. Securitization market commentary by DBRS this week studies the impact of an interim rule by the Federal Deposit Insurance Corp. (FDIC) on asset-backed securities (ABS) issued by FDIC-insured banks. The FDIC's interim rule responds to industry concerns that under Financial Accounting Standard (FAS) 166 and 167, transfers of assets from insured depository firms to securitization vehicles would not be deemed sales under generally accepted accounting principles (GAAP) and would be subject to seizure by the FDIC in the event of a bank failure. The rule provides a temporary "safe harbor" for assets being transferred for securitization. The rule extends the FDIC's "securitization rule" to transactions that would not qualify as sales under post-FAS 166 GAAP, as long as they qualify under pre-FAS 166 GAAP. The rule grandfathers securitizations for which assets were transferred prior to March 31, 2010, as long as these participations complied with GAAP before Nov. 15, 2009. "This new clarity should afford the support necessary for reliance by opining law firms providing the legal opinions on bank sponsored transactions closed on or before March 31, 2009 of a certainty consistent with highly rated asset-backed transactions, potentially possessing credit ratings higher than that of the sponsoring institution," DBRS said in commentary Monday. DBRS said it expects additional guidance from the FDIC in December regarding the treatment of securitizations issued after March 31. The full effect of FAS 166 and 167 is still being determined, but the firm said they could result in further reductions in issuance volume in certain asset classes like credit cards where bank-sponsored transactions traditionally dominated the sector. FAS 166 and 167 require banks to bring securitizations onto balance sheets and increase their capital reserves accordingly. The accountancy changes have been criticized as likely to make securitization too expensive for some financial institutions to continue the practice. Write to Diana Golobay.