80_FR_73313 80 FR 73087 - Treatment of Financial Assets Transferred in Connection With a Securitization or Participation

80 FR 73087 - Treatment of Financial Assets Transferred in Connection With a Securitization or Participation

FEDERAL DEPOSIT INSURANCE CORPORATION

Federal Register Volume 80, Issue 226 (November 24, 2015)

Page Range73087-73090
FR Document2015-29822

The Federal Deposit Insurance Corporation (the ``FDIC'') is issuing a final rule (the ``Final Rule'') that revises certain provisions of its securitization safe harbor rule, which relates to the treatment of financial assets transferred in connection with a securitization or participation, in order to clarify the requirements of the securitization safe harbor as to the retention of an economic interest in the credit risk of securitized financial assets in connection with the effectiveness of the credit risk retention regulations adopted under Section 15G of the Securities Exchange Act.

Federal Register, Volume 80 Issue 226 (Tuesday, November 24, 2015) 
[Federal Register Volume 80, Number 226 (Tuesday, November 24, 2015)]
[Rules and Regulations]
[Pages 73087-73090]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-29822]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 80, No. 226 / Tuesday, November 24, 2015 / 
Rules and Regulations

[[Page 73087]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AE32


Treatment of Financial Assets Transferred in Connection With a 
Securitization or Participation

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (the ``FDIC'') is 
issuing a final rule (the ``Final Rule'') that revises certain 
provisions of its securitization safe harbor rule, which relates to the 
treatment of financial assets transferred in connection with a 
securitization or participation, in order to clarify the requirements 
of the securitization safe harbor as to the retention of an economic 
interest in the credit risk of securitized financial assets in 
connection with the effectiveness of the credit risk retention 
regulations adopted under Section 15G of the Securities Exchange Act.

DATES: Effective January 25, 2016.

FOR FURTHER INFORMATION CONTACT:  Phillip E. Sloan, Counsel, Legal 
Division (703) 562-6137; or George H. Williamson, Manager, Division of 
Resolutions and Receiverships (571) 858-8199.

SUPPLEMENTARY INFORMATION:

I. Background

    The Federal Deposit Insurance Corporation (FDIC), in regulations 
codified at 12 CFR 360.6 (the Securitization Safe Harbor Rule), set 
forth criteria under which in its capacity as receiver or conservator 
of an insured depository institution the FDIC will not, in the exercise 
of its authority to repudiate contracts, recover or reclaim financial 
assets transferred in connection with securitization transactions. 
Asset transfers that, under the Securitization Safe Harbor Rule, are 
not subject to recovery or reclamation through the exercise of the 
FDIC's repudiation authority include those that pertain to certain 
grandfathered transactions, such as, for example, asset transfers made 
prior to December 31, 2010 that satisfied the conditions (except for 
the legal isolation condition addressed by the Securitization Safe 
Harbor Rule) for sale accounting treatment under generally accepted 
accounting principles (GAAP) in effect for reporting periods prior to 
November 15, 2009 and that pertain to a securitization transaction that 
satisfied certain other requirements. In addition, the Securitization 
Safe Harbor Rule provides that asset transfers that are not 
grandfathered, but that satisfy the conditions (except for the legal 
isolation condition addressed by the Securitization Safe Harbor Rule) 
for sale accounting treatment under GAAP in effect for reporting 
periods after November 15, 2009 and that pertain to a securitization 
transaction that satisfies all other conditions of the Securitization 
Safe Harbor Rule (such asset transfers, together with grandfathered 
asset transfers, are referred to collectively as Safe Harbor Transfers) 
will not be subject to FDIC recovery or reclamation actions through the 
exercise of the FDIC's repudiation authority. For any securitization 
transaction in respect of which transfers of financial assets do not 
qualify as Safe Harbor Transfers but which transaction satisfies all of 
its other requirements, the Securitization Safe Harbor Rule provides 
that, in the event the FDIC as receiver or conservator remains in 
monetary default for a specified period under a securitization due to 
its failure to pay or apply collections or repudiates the 
securitization asset transfer agreement and does not pay damages within 
a specified period, certain remedies can be exercised on an expedited 
basis.
    Paragraph (b)(5)(i) of the Securitization Safe Harbor Rule sets 
forth the conditions relating to credit risk retention that apply to 
transfers of financial assets in connection with securitizations that 
are not grandfathered by the Securitization Safe Harbor Rule. Under 
paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule as 
currently in effect, prior to the effective date of regulations 
required under Section 15G of the Securities Exchange Act, 15 U.S.C. 
78a et seq. (``Section 15G''), the documents governing such 
securitization must require that the sponsor retain an economic 
interest in not less than five (5) percent of the credit risk of the 
financial assets relating to the securitization. The requirement in 
paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule, that the 
documents require retention of an economic interest, is consistent with 
many other provisions of the Securitization Safe Harbor Rule, which are 
similarly expressed as requirements for the securitization 
documentation, rather than as conditions requiring actual compliance 
with the provision that is required to be included in the 
documentation. As currently in effect, paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule does not explicitly refer to the 
securitization documentation, but provides that, upon the effective 
date of the regulations required under Section 15G (the Section 15G 
Regulations), such regulations shall exclusively govern the requirement 
to retain an economic interest in the credit risk of the financial 
assets.
    Section 15G provides that regulations issued thereunder become 
effective with respect to residential mortgage securitizations one year 
after the date on which the regulations are published in the Federal 
Register and, with respect to all other securitizations, two years 
after such publication date. The Section 15G Regulations were published 
in the Federal Register at 79 FR 77602 on December 24, 2014. The 
Federal Register publication of the Section 15G Regulations specifies 
``compliance dates'' that correspond to these effective dates. However, 
the Federal Register publication also specifies February 23, 2015 as 
the ``effective date'' of the Section 15G Regulations in accordance 
with Federal Register editorial conventions, which require that a 
Federal Register publication specify as the effective date the date on 
which a rule affects the current Code of Federal Regulations.\1\
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    \1\ See 79 FR 77602 (December 24, 2014).
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    In connection with the notice of proposed rulemaking relating to 
the Section 15G Regulations, FDIC staff received a comment that 
suggested that

[[Page 73088]]

certain other points relating to paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule should be clarified.
    On January 30, 2015, the FDIC published a notice of proposed 
rulemaking relating to the Securitization Safe Harbor Rule (the 
``NPR''). The NPR was designed, in part, to eliminate any confusion 
that might be created by the use of ``effective date'' in the Section 
15G Regulations Federal Register publication and to clarify when 
compliance with paragraph (b)(5)(i)(B) of the Securitization Safe 
Harbor Rule is required. In addition, the NPR included a proposed rule 
(the Proposed Rule) that addressed two of the points raised by the 
commenter.\2\ The first is a clarification that paragraph (b)(5)(i)(B) 
was intended to require that, upon and following the applicable 
effective date under the Section 15G Regulations (such applicable 
effective dates (December 24, 2015 for residential mortgage 
securitizations and December 24, 2016 for all other securitizations) 
are referred to as the applicable compliance dates), the Securitization 
Safe Harbor Rule requirements as to risk retention are satisfied if the 
governing documents of a securitization transaction require retention 
of an economic interest in the financial assets in accordance with the 
Section 15G Regulations, and that if the documentation satisfies this 
condition (and assuming all other conditions of the Securitization Safe 
Harbor Rule are satisfied), the transaction will not lose the benefits 
of the safe harbor solely on the basis of any non-compliance with the 
Section 15G Regulations risk retention requirements.
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    \2\ 80 FR 5076 (January 30, 2015).
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    The second is a clarification that paragraph (b)(5)(i)(B) of the 
Securitization Safe Harbor Rule does not require that any action be 
taken with respect to issuances of asset-backed securities that close 
prior to the applicable compliance date of the Section 15G Regulations.
    These two clarifications, which were included in the Proposed Rule, 
together with an additional change suggested by a comment letter 
relating to the Proposed Rule, are included in the Final Rule.

II. Comment Received on the Proposed Rule

    The FDIC received one comment letter, from an industry trade 
association, in response to the Proposed Rule. This letter supported 
the changes included in the Proposed Rule and requested that the Final 
Rule include one additional change relating to the credit risk 
retention condition of the Securitization Safe Harbor Rule. The 
commenter referred to the applicable compliance dates for the Section 
15G Regulations and proposed that the Final Rule provide securitization 
sponsors the option, with respect to a securitization transaction, to 
comply with the credit risk retention condition of the Securitization 
Safe Harbor Rule by adopting the Section 15G risk retention 
requirements during the period preceding the applicable compliance date 
for such transaction, even though the Section 15G Regulations do not 
require such compliance before such applicable compliance date. The 
commenter stated that providing such optionality ``would effectuate the 
principle underlying the credit risk retention condition of the 
Securitization Safe Harbor Rule.'' \3\
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    \3\ Letter dated March 30, 2015, p. 3.
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III. Policy Objective

    The policy objective underlying the Final Rule is to create 
certainty and eliminate unnecessary burdens in connection with the 
transition to the Section 15G Regulations requirements as to credit 
risk retention.

IV. The Final Rule

Overview

    The Final Rule clarifies that the Securitization Safe Harbor Rule 
condition relating to credit risk retention requires that the documents 
governing a securitization transaction that closes on or after the 
applicable compliance date under the Section 15G Regulations must 
require that an economic interest in the credit risk of the financial 
assets is retained in accordance with the Section 15G Regulations. The 
Final Rule provision effecting this clarification also makes clear that 
the migration of the Securitization Safe Harbor Rule to the Section 15G 
Regulations governing credit risk retention will not require changes to 
documents governing securitizations that closed prior to the applicable 
compliance date. The provision also makes clear that the transition to 
the Section 15G standard is a documentation requirement and, thus, does 
not put investors at risk if a securitization sponsor, in violation of 
transaction documents, does not retain credit risk in accordance with 
the Section 15G Regulations.
    Because securitization investors have relied on the Securitization 
Safe Harbor Rule to obtain an understanding of how the FDIC might 
exercise its powers if it is appointed receiver or conservator for an 
insured depository institution which transferred assets in connection 
with a securitization transaction, the FDIC believes that it is 
important to make clear to securitization market participants the date 
upon and after which the Securitization Safe Harbor will require 
reference to the Section 15G Regulations. In addition, the FDIC wants 
to eliminate possible confusion among market participants as to whether 
an asset-backed security issuance that complies with all requirements 
of the Securitization Safe Harbor Rule could forfeit the benefits 
afforded by the Securitization Safe Harbor Rule based on the action or 
inaction of a securitization sponsor or other party with respect to 
retention of credit risk following the date of such issuance. This is 
different from the Section 15G Regulations, under which non-compliance 
with the credit risk retention requirements will constitute a violation 
of the Regulations.
    Consistent with the clarifications to the process for migration to 
the Section 15G Regulations included in the Proposed Rule, the Final 
Rule follows the commenter's suggestion and permits securitization 
sponsors to comply with the credit risk retention requirements of the 
Securitization Safe Harbor Rule by opting in the securitization's 
governing documents to require compliance with the Section 15G 
Regulations earlier than required by the Section 15G Regulations. It is 
the FDIC's view that since the Securitization Safe Harbor Rule has 
always required the transition to the Section 15G risk retention 
requirements, there is no compelling reason to require that 
securitization sponsors await the applicable compliance date in order 
to use one of the risk retention methods available under the Section 
15G Regulations. In following the commenter's proposal, the FDIC wished 
to avoid imposing unnecessary burdens on sponsors that otherwise might 
need to establish a securitization structure for the issuance of 
multiple series before the applicable compliance date and then need to 
amend the structure after the applicable compliance date. The FDIC sees 
no reason to require such extra expense. The FDIC recognizes that 
permitting securitization sponsors to cause a securitization 
transaction to comply with the Securitization Safe Harbor Rule by 
exercising an option to require compliance with the Section 15G 
Regulations before the applicable compliance date also has the effect 
of allowing greater flexibility with respect to risk retention for 
purposes of complying with the Securitization Safe

[[Page 73089]]

Harbor Rule, and in some cases may permit sponsors to benefit from 
exemptions available under the Section 15G Regulations earlier than 
otherwise would be the case for purposes of the Securitization Safe 
Harbor Rule. In promulgating the Section 15G Regulations, the FDIC 
determined that the approach to risk retention adopted by those rules 
is effective and appropriate and, thus, the option of early adoption 
also is appropriate.

Section-by-Section Analysis

Definitions
    The Final Rule adds a new definition, ``applicable compliance 
date'' to paragraph (a) of the Securitization Safe Harbor Rule. This 
definition reflects that the Section 15G Regulations impose two dates 
for compliance: December 24, 2015 for securitization of residential 
mortgages, and December 24, 2016 for all other securitizations.
Paragraph (b)(5)(i)
    The Final Rule revises paragraph (b)(5)(i) of the Securitization 
Safe Harbor Rule to make the following three points clear:
    (i) In order to qualify for the benefits of the Securitization Safe 
Harbor Rule, the documents governing the issuance of asset-backed 
securities in a securitization transaction must require retention of an 
economic interest in the credit risk of the financial assets relating 
to the securitization transaction in compliance with the Section 15G 
Regulations if such issuance occurs upon or following the date on which 
compliance with Section 15G is required for such type of securitization 
transaction;
    (ii) The Securitization Safe Harbor Rule does not require inquiry 
as to whether the sponsor or other applicable party in fact complies 
with the risk retention requirements of the documentation; and
    (iii) The Securitization Safe Harbor Rule requirements as to the 
Section 15G Regulations do not require changes to securitization 
documents governing asset-backed security issuances that are closed 
prior to the applicable compliance date under the Section 15G 
Regulations.
    In addition, the Final Rule revises paragraph (b)(5)(i) of the 
Securitization Safe Harbor Rule to permit a securitization transaction, 
that closes between the date of the publication of the Final Rule in 
the Federal Register and the applicable compliance date related to such 
securitization transaction, to comply with the paragraph if the 
documents creating the securitization require retention of an economic 
interest in the credit risk of the financial assets in accordance with 
the requirements of the Section 15G Regulations as though such 
Regulations were then in effect. In the case of a securitization 
transaction of an entity established to issue obligations in more than 
one securitization transaction, the election to require in the 
documents creating the securitization transaction that risk be retained 
in accordance with the Section 15G Regulations can be set forth either 
in the specific securitization transaction documents or, provided that 
it governs the securitization transaction, in one of the documents 
establishing or otherwise governing the issuing entity.

V. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    This rule would entail an information collection for sponsors that 
exercise the option to become subject to the Section 15G Regulations 
earlier than otherwise required. Because the information to be 
collected is the same, however, as that encompassed by the collection 
of information that was approved under OMB No. 3064-0183, no new 
submission is being made to OMB with respect to the Paperwork Reduction 
Act (44 U.S.C. 3501, et seq.).\4\
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    \4\ The specific method of defining the respondent population 
differed in some respects for purposes of the FDIC's Section 15G PRA 
submission, OMB No. 3064-0183. The respondent population for that 
submission was based on an allocation to the bank regulatory 
agencies based on the number of sponsors regulated by them, with the 
remainder of sponsors allocated to the Securities and Exchange 
Commission. The allocation to the bank regulatory agencies was then 
divided among the FDIC and the other bank regulatory agencies. The 
respondents for purposes of this Rule are IDIs that are projected to 
sponsor securitizations and elect to comply early with the Section 
15G Regulations, and the number of responses is based on the 
projected number of securitizations for which those sponsors would 
be expected to elect the early compliance option.
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B. Regulatory Flexibility Act

    The Regulatory Flexibility Act 5 U.S.C. 601, et seq. (RFA) requires 
each federal agency to prepare a final regulatory flexibility analysis 
in connection with the promulgation of a final rule, or certify that 
the final rule will not have a significant economic impact on a 
substantial number of small entities.\5\ Pursuant to section 605(b) of 
the Regulatory Flexibility Act, the FDIC certifies that the Final Rule 
will not have a significant economic impact on a substantial number of 
small entities.
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    \5\ See 5 U.S.C. 603, 604 and 605.
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C. Small Business Regulatory Enforcement Act

    The Office of Management and Budget has determined that the Final 
Rule is Not a ``major rule'' within the meaning of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), (5 U.S.C. 801 et 
seq.). As required by the SBREFA, the FDIC will file the appropriate 
reports with Congress and the Government Accountability Office so that 
the Final Rule may be reviewed.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat.1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Final Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR Part 360

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Participations, Reporting and recordkeeping requirements, 
Savings associations, Securitizations.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation amends 12 CFR part 360 as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

0
1. The authority citation for part 360 continues to read as follows:

    Authority:  12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) 
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 
1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), 
1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-
73, 103 Stat. 357.

0
2. Amend Sec.  360.6 as follows:
0
a. Redesignate paragraphs (a)(1) through (11) as (a)(2) through (12) 
and add a new paragraph (a)(1).
0
b. Revise paragraph (b)(5)(i).
    The addition and revision read as follows:


Sec.  360.6  Treatment of financial assets transferred in connection 
with a securitization or participation.

    (a) * * *
    (1) Applicable compliance date means, with respect to a 
securitization, the date on which compliance with Section 15G of the 
Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act is 
required with respect to that securitization.
* * * * *
    (b) * * *
    (5) * * *
    (i) Requirements applicable to all securitizations. (A) Prior to 
the

[[Page 73090]]

applicable compliance date for regulations required under Section 15G 
of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the documents creating the securitization shall require that the 
sponsor retain an economic interest in a material portion, defined as 
not less than five (5) percent, of the credit risk of the financial 
assets. This retained interest may be either in the form of an interest 
of not less than five (5) percent in each of the credit tranches sold 
or transferred to the investors or in a representative sample of the 
securitized financial assets equal to not less than five (5) percent of 
the principal amount of the financial assets at transfer. This retained 
interest may not be sold, pledged or hedged, except for the hedging of 
interest rate or currency risk, during the term of the securitization.
    (B) For any securitization that closes upon or following the 
applicable compliance date for regulations required under Section 15G 
of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the documents creating the securitization shall instead require 
retention of an economic interest in the credit risk of the financial 
assets in accordance with such regulations, including the restrictions 
on sale, pledging and hedging set forth therein.
    (C) Notwithstanding paragraph (b)(5)(i)(A) of this section, for any 
securitization that closes following ________ November 24, 2015 and 
prior to the applicable compliance date for regulations required under 
Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., 
added by Section 941(b) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, at the option of the sponsor, the requirements 
of paragraph (b)(5)(i)(B) of this section may be satisfied if (in lieu 
of the requirement set forth in paragraph (b)(5)(i)(A) of this section) 
the documents creating the securitization require retention of an 
economic interest in the credit risk of the financial assets in 
accordance with the requirements of the Section 15G regulations as 
though such regulations were then in effect.
* * * * *

    Dated at Washington, DC, this 22nd day of October, 2015.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015-29822 Filed 11-23-15; 8:45 am]
 BILLING CODE 6714-01-P

73087 Rules and Regulations Federal Register Vol. 80, No. 226 Tuesday, November 24, 2015 This section of the FEDERAL REGISTER connection with securitization to the effective date of regulations contains regulatory documents having general transactions. Asset transfers that, under required under Section 15G of the applicability and legal effect, most of which the Securitization Safe Harbor Rule, are Securities Exchange Act, 15 U.S.C. 78a are keyed to and codified in the Code of not subject to recovery or reclamation et seq. (‘‘Section 15G’’), the documents Federal Regulations, which is published under through the exercise of the FDIC’s governing such securitization must 50 titles pursuant to 44 U.S.C. 1510. repudiation authority include those that require that the sponsor retain an The Code of Federal Regulations is sold by pertain to certain grandfathered economic interest in not less than five the Superintendent of Documents. Prices of transactions, such as, for example, asset (5) percent of the credit risk of the new books are listed in the first FEDERAL transfers made prior to December 31, financial assets relating to the REGISTER issue of each week. 2010 that satisfied the conditions securitization. The requirement in (except for the legal isolation condition paragraph (b)(5)(i)(A) of the addressed by the Securitization Safe Securitization Safe Harbor Rule, that the FEDERAL DEPOSIT INSURANCE Harbor Rule) for sale accounting documents require retention of an CORPORATION treatment under generally accepted economic interest, is consistent with accounting principles (GAAP) in effect many other provisions of the 12 CFR Part 360 for reporting periods prior to November Securitization Safe Harbor Rule, which RIN 3064–AE32 15, 2009 and that pertain to a are similarly expressed as requirements securitization transaction that satisfied for the securitization documentation, Treatment of Financial Assets certain other requirements. In addition, rather than as conditions requiring Transferred in Connection With a the Securitization Safe Harbor Rule actual compliance with the provision Securitization or Participation provides that asset transfers that are not that is required to be included in the grandfathered, but that satisfy the documentation. As currently in effect, AGENCY: Federal Deposit Insurance conditions (except for the legal isolation paragraph (b)(5)(i)(B) of the Corporation. condition addressed by the Securitization Safe Harbor Rule does not ACTION: Final rule. Securitization Safe Harbor Rule) for sale explicitly refer to the securitization accounting treatment under GAAP in documentation, but provides that, upon SUMMARY: The Federal Deposit effect for reporting periods after the effective date of the regulations Insurance Corporation (the ‘‘FDIC’’) is November 15, 2009 and that pertain to required under Section 15G (the Section issuing a final rule (the ‘‘Final Rule’’) a securitization transaction that satisfies 15G Regulations), such regulations shall that revises certain provisions of its all other conditions of the Securitization exclusively govern the requirement to securitization safe harbor rule, which Safe Harbor Rule (such asset transfers, retain an economic interest in the credit relates to the treatment of financial together with grandfathered asset risk of the financial assets. assets transferred in connection with a transfers, are referred to collectively as Section 15G provides that regulations securitization or participation, in order Safe Harbor Transfers) will not be issued thereunder become effective with to clarify the requirements of the subject to FDIC recovery or reclamation respect to residential mortgage securitization safe harbor as to the actions through the exercise of the securitizations one year after the date on retention of an economic interest in the FDIC’s repudiation authority. For any which the regulations are published in credit risk of securitized financial assets securitization transaction in respect of the Federal Register and, with respect in connection with the effectiveness of which transfers of financial assets do to all other securitizations, two years the credit risk retention regulations not qualify as Safe Harbor Transfers but after such publication date. The Section adopted under Section 15G of the which transaction satisfies all of its 15G Regulations were published in the Securities Exchange Act. other requirements, the Securitization Federal Register at 79 FR 77602 on DATES: Effective January 25, 2016. Safe Harbor Rule provides that, in the December 24, 2014. The Federal FOR FURTHER INFORMATION CONTACT: event the FDIC as receiver or Register publication of the Section 15G Phillip E. Sloan, Counsel, Legal Division conservator remains in monetary default Regulations specifies ‘‘compliance (703) 562–6137; or George H. for a specified period under a dates’’ that correspond to these effective Williamson, Manager, Division of securitization due to its failure to pay or dates. However, the Federal Register Resolutions and Receiverships (571) apply collections or repudiates the publication also specifies February 23, 858–8199. securitization asset transfer agreement 2015 as the ‘‘effective date’’ of the SUPPLEMENTARY INFORMATION: and does not pay damages within a Section 15G Regulations in accordance specified period, certain remedies can with Federal Register editorial I. Background be exercised on an expedited basis. conventions, which require that a The Federal Deposit Insurance Paragraph (b)(5)(i) of the Federal Register publication specify as Corporation (FDIC), in regulations Securitization Safe Harbor Rule sets the effective date the date on which a codified at 12 CFR 360.6 (the forth the conditions relating to credit rule affects the current Code of Federal mstockstill on DSK4VPTVN1PROD with RULES Securitization Safe Harbor Rule), set risk retention that apply to transfers of Regulations.1 forth criteria under which in its capacity financial assets in connection with In connection with the notice of as receiver or conservator of an insured securitizations that are not proposed rulemaking relating to the depository institution the FDIC will not, grandfathered by the Securitization Safe Section 15G Regulations, FDIC staff in the exercise of its authority to Harbor Rule. Under paragraph received a comment that suggested that repudiate contracts, recover or reclaim (b)(5)(i)(A) of the Securitization Safe financial assets transferred in Harbor Rule as currently in effect, prior 1 See 79 FR 77602 (December 24, 2014). VerDate Sep<11>2014 23:14 Nov 23, 2015 Jkt 238001 PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 E:\FR\FM\24NOR1.SGM 24NOR1

73088 Federal Register / Vol. 80, No. 226 / Tuesday, November 24, 2015 / Rules and Regulations certain other points relating to credit risk retention condition of the an insured depository institution which paragraph (b)(5)(i)(B) of the Securitization Safe Harbor Rule. The transferred assets in connection with a Securitization Safe Harbor Rule should commenter referred to the applicable securitization transaction, the FDIC be clarified. compliance dates for the Section 15G believes that it is important to make On January 30, 2015, the FDIC Regulations and proposed that the Final clear to securitization market published a notice of proposed Rule provide securitization sponsors the participants the date upon and after rulemaking relating to the Securitization option, with respect to a securitization which the Securitization Safe Harbor Safe Harbor Rule (the ‘‘NPR’’). The NPR transaction, to comply with the credit will require reference to the Section 15G was designed, in part, to eliminate any risk retention condition of the Regulations. In addition, the FDIC wants confusion that might be created by the Securitization Safe Harbor Rule by to eliminate possible confusion among use of ‘‘effective date’’ in the Section adopting the Section 15G risk retention market participants as to whether an 15G Regulations Federal Register requirements during the period asset-backed security issuance that publication and to clarify when preceding the applicable compliance complies with all requirements of the compliance with paragraph (b)(5)(i)(B) date for such transaction, even though Securitization Safe Harbor Rule could of the Securitization Safe Harbor Rule is the Section 15G Regulations do not forfeit the benefits afforded by the required. In addition, the NPR included require such compliance before such Securitization Safe Harbor Rule based a proposed rule (the Proposed Rule) that applicable compliance date. The on the action or inaction of a addressed two of the points raised by commenter stated that providing such securitization sponsor or other party the commenter.2 The first is a optionality ‘‘would effectuate the with respect to retention of credit risk clarification that paragraph (b)(5)(i)(B) principle underlying the credit risk following the date of such issuance. was intended to require that, upon and retention condition of the Securitization This is different from the Section 15G following the applicable effective date Safe Harbor Rule.’’ 3 Regulations, under which non- under the Section 15G Regulations compliance with the credit risk (such applicable effective dates III. Policy Objective retention requirements will constitute a (December 24, 2015 for residential The policy objective underlying the violation of the Regulations. mortgage securitizations and December Final Rule is to create certainty and Consistent with the clarifications to 24, 2016 for all other securitizations) are eliminate unnecessary burdens in the process for migration to the Section referred to as the applicable compliance connection with the transition to the 15G Regulations included in the dates), the Securitization Safe Harbor Section 15G Regulations requirements Rule requirements as to risk retention Proposed Rule, the Final Rule follows as to credit risk retention. the commenter’s suggestion and permits are satisfied if the governing documents of a securitization transaction require IV. The Final Rule securitization sponsors to comply with retention of an economic interest in the the credit risk retention requirements of Overview the Securitization Safe Harbor Rule by financial assets in accordance with the Section 15G Regulations, and that if the The Final Rule clarifies that the opting in the securitization’s governing documentation satisfies this condition Securitization Safe Harbor Rule documents to require compliance with (and assuming all other conditions of condition relating to credit risk the Section 15G Regulations earlier than the Securitization Safe Harbor Rule are retention requires that the documents required by the Section 15G satisfied), the transaction will not lose governing a securitization transaction Regulations. It is the FDIC’s view that the benefits of the safe harbor solely on that closes on or after the applicable since the Securitization Safe Harbor the basis of any non-compliance with compliance date under the Section 15G Rule has always required the transition the Section 15G Regulations risk Regulations must require that an to the Section 15G risk retention retention requirements. economic interest in the credit risk of requirements, there is no compelling The second is a clarification that the financial assets is retained in reason to require that securitization paragraph (b)(5)(i)(B) of the accordance with the Section 15G sponsors await the applicable Securitization Safe Harbor Rule does not Regulations. The Final Rule provision compliance date in order to use one of require that any action be taken with effecting this clarification also makes the risk retention methods available respect to issuances of asset-backed clear that the migration of the under the Section 15G Regulations. In securities that close prior to the Securitization Safe Harbor Rule to the following the commenter’s proposal, the applicable compliance date of the Section 15G Regulations governing FDIC wished to avoid imposing Section 15G Regulations. credit risk retention will not require unnecessary burdens on sponsors that These two clarifications, which were changes to documents governing otherwise might need to establish a included in the Proposed Rule, together securitizations that closed prior to the securitization structure for the issuance with an additional change suggested by applicable compliance date. The of multiple series before the applicable a comment letter relating to the provision also makes clear that the compliance date and then need to Proposed Rule, are included in the Final transition to the Section 15G standard is amend the structure after the applicable Rule. a documentation requirement and, thus, compliance date. The FDIC sees no does not put investors at risk if a reason to require such extra expense. II. Comment Received on the Proposed securitization sponsor, in violation of The FDIC recognizes that permitting Rule transaction documents, does not retain securitization sponsors to cause a The FDIC received one comment credit risk in accordance with the securitization transaction to comply letter, from an industry trade Section 15G Regulations. with the Securitization Safe Harbor Rule mstockstill on DSK4VPTVN1PROD with RULES association, in response to the Proposed Because securitization investors have by exercising an option to require Rule. This letter supported the changes relied on the Securitization Safe Harbor compliance with the Section 15G included in the Proposed Rule and Rule to obtain an understanding of how Regulations before the applicable requested that the Final Rule include the FDIC might exercise its powers if it compliance date also has the effect of one additional change relating to the is appointed receiver or conservator for allowing greater flexibility with respect to risk retention for purposes of 2 80 FR 5076 (January 30, 2015). 3 Letter dated March 30, 2015, p. 3. complying with the Securitization Safe VerDate Sep<11>2014 23:14 Nov 23, 2015 Jkt 238001 PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 E:\FR\FM\24NOR1.SGM 24NOR1

Federal Register / Vol. 80, No. 226 / Tuesday, November 24, 2015 / Rules and Regulations 73089 Harbor Rule, and in some cases may securitization require retention of an Not a ‘‘major rule’’ within the meaning permit sponsors to benefit from economic interest in the credit risk of of the Small Business Regulatory exemptions available under the Section the financial assets in accordance with Enforcement Fairness Act of 1996 15G Regulations earlier than otherwise the requirements of the Section 15G (SBREFA), (5 U.S.C. 801 et seq.). As would be the case for purposes of the Regulations as though such Regulations required by the SBREFA, the FDIC will Securitization Safe Harbor Rule. In were then in effect. In the case of a file the appropriate reports with promulgating the Section 15G securitization transaction of an entity Congress and the Government Regulations, the FDIC determined that established to issue obligations in more Accountability Office so that the Final the approach to risk retention adopted than one securitization transaction, the Rule may be reviewed. by those rules is effective and election to require in the documents creating the securitization transaction D. Plain Language appropriate and, thus, the option of early adoption also is appropriate. that risk be retained in accordance with Section 722 of the Gramm-Leach- the Section 15G Regulations can be set Bliley Act (Pub. L. 106–102, 113 Section-by-Section Analysis forth either in the specific securitization Stat.1338, 1471), requires the Federal Definitions transaction documents or, provided that banking agencies to use plain language it governs the securitization transaction, in all proposed and final rules The Final Rule adds a new definition, in one of the documents establishing or published after January 1, 2000. The ‘‘applicable compliance date’’ to otherwise governing the issuing entity. FDIC has sought to present the Final paragraph (a) of the Securitization Safe V. Regulatory Analysis and Procedure Rule in a simple and straightforward Harbor Rule. This definition reflects that manner. the Section 15G Regulations impose two A. Paperwork Reduction Act dates for compliance: December 24, List of Subjects in 12 CFR Part 360 2015 for securitization of residential This rule would entail an information collection for sponsors that exercise the Banks, Banking, Bank deposit mortgages, and December 24, 2016 for insurance, Holding companies, National all other securitizations. option to become subject to the Section 15G Regulations earlier than otherwise banks, Participations, Reporting and Paragraph (b)(5)(i) required. Because the information to be recordkeeping requirements, Savings collected is the same, however, as that associations, Securitizations. The Final Rule revises paragraph (b)(5)(i) of the Securitization Safe encompassed by the collection of For the reasons stated above, the Harbor Rule to make the following three information that was approved under Board of Directors of the Federal points clear: OMB No. 3064–0183, no new Deposit Insurance Corporation amends (i) In order to qualify for the benefits submission is being made to OMB with 12 CFR part 360 as follows: of the Securitization Safe Harbor Rule, respect to the Paperwork Reduction Act (44 U.S.C. 3501, et seq.).4 PART 360—RESOLUTION AND the documents governing the issuance RECEIVERSHIP RULES of asset-backed securities in a B. Regulatory Flexibility Act securitization transaction must require ■ 1. The authority citation for part 360 retention of an economic interest in the The Regulatory Flexibility Act 5 U.S.C. 601, et seq. (RFA) requires each continues to read as follows: credit risk of the financial assets relating federal agency to prepare a final Authority: 12 U.S.C. 1817(b), 1818(a)(2), to the securitization transaction in regulatory flexibility analysis in 1818(t), 1819(a) Seventh, Ninth and Tenth, compliance with the Section 15G 1820(b)(3), (4), 1821(d)(1), 1821(d)(10)(c), connection with the promulgation of a Regulations if such issuance occurs 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), final rule, or certify that the final rule upon or following the date on which 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. will not have a significant economic compliance with Section 15G is 401(h), Pub. L. 101–73, 103 Stat. 357. impact on a substantial number of small required for such type of securitization ■ 2. Amend § 360.6 as follows: entities.5 Pursuant to section 605(b) of transaction; ■ a. Redesignate paragraphs (a)(1) the Regulatory Flexibility Act, the FDIC (ii) The Securitization Safe Harbor through (11) as (a)(2) through (12) and certifies that the Final Rule will not Rule does not require inquiry as to add a new paragraph (a)(1). have a significant economic impact on whether the sponsor or other applicable ■ b. Revise paragraph (b)(5)(i). a substantial number of small entities. party in fact complies with the risk The addition and revision read as retention requirements of the C. Small Business Regulatory follows: documentation; and Enforcement Act (iii) The Securitization Safe Harbor § 360.6 Treatment of financial assets The Office of Management and Budget transferred in connection with a Rule requirements as to the Section 15G has determined that the Final Rule is Regulations do not require changes to securitization or participation. securitization documents governing 4 The specific method of defining the respondent (a) * * * asset-backed security issuances that are population differed in some respects for purposes (1) Applicable compliance date closed prior to the applicable of the FDIC’s Section 15G PRA submission, OMB means, with respect to a securitization, compliance date under the Section 15G No. 3064–0183. The respondent population for that the date on which compliance with submission was based on an allocation to the bank Section 15G of the Securities Exchange Regulations. regulatory agencies based on the number of In addition, the Final Rule revises sponsors regulated by them, with the remainder of Act, 15 U.S.C. 78a et seq., added by paragraph (b)(5)(i) of the Securitization sponsors allocated to the Securities and Exchange Section 941(b) of the Dodd-Frank Wall Safe Harbor Rule to permit a Commission. The allocation to the bank regulatory Street Reform and Consumer Protection mstockstill on DSK4VPTVN1PROD with RULES agencies was then divided among the FDIC and the Act is required with respect to that securitization transaction, that closes other bank regulatory agencies. The respondents for between the date of the publication of purposes of this Rule are IDIs that are projected to securitization. the Final Rule in the Federal Register sponsor securitizations and elect to comply early * * * * * and the applicable compliance date with the Section 15G Regulations, and the number (b) * * * of responses is based on the projected number of related to such securitization securitizations for which those sponsors would be (5) * * * transaction, to comply with the expected to elect the early compliance option. (i) Requirements applicable to all paragraph if the documents creating the 5 See 5 U.S.C. 603, 604 and 605. securitizations. (A) Prior to the VerDate Sep<11>2014 23:14 Nov 23, 2015 Jkt 238001 PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 E:\FR\FM\24NOR1.SGM 24NOR1

73090 Federal Register / Vol. 80, No. 226 / Tuesday, November 24, 2015 / Rules and Regulations applicable compliance date for Federal Deposit Insurance Corporation. I. Background regulations required under Section 15G Robert E. Feldman, FHFA is an independent agency of the of the Securities Exchange Act, 15 Executive Secretary. federal government established to U.S.C. 78a et seq., added by Section [FR Doc. 2015–29822 Filed 11–23–15; 8:45 am] regulate and oversee the Federal 941(b) of the Dodd-Frank Wall Street BILLING CODE 6714–01–P National Mortgage Association (Fannie Reform and Consumer Protection Act, Mae), the Federal Home Loan Mortgage the documents creating the Corporation (Freddie Mac) (collectively, securitization shall require that the the Enterprises), and the Federal Home sponsor retain an economic interest in FEDERAL HOUSING FINANCE Loan Banks (Bank(s)) (collectively, the a material portion, defined as not less AGENCY regulated entities).1 FHFA is the than five (5) percent, of the credit risk primary federal financial regulator of 12 CFR Part 1238 each regulated entity. FHFA’s regulatory of the financial assets. This retained interest may be either in the form of an mission is to ensure, among other RIN 2590–AA74 things, that each of the regulated entities interest of not less than five (5) percent in each of the credit tranches sold or ‘‘operates in a safe and sound manner’’ Stress Testing of Regulated Entities transferred to the investors or in a and that their ‘‘operations and activities representative sample of the securitized AGENCY: Federal Housing Finance . . . foster liquid, efficient, competitive, financial assets equal to not less than Agency. and resilient national housing finance five (5) percent of the principal amount ACTION: Final rule. markets.’’ 2 On September 26, 2013, FHFA of the financial assets at transfer. This SUMMARY: The Federal Housing Finance published a final rule implementing retained interest may not be sold, Agency (FHFA) is adopting a final rule section 165(i)(2) of the Dodd-Frank Wall pledged or hedged, except for the amending its stress testing rule adopted Street Reform and Consumer Protection hedging of interest rate or currency risk, Act (Dodd-Frank Act),3 which requires in 2013 to implement section 165(i) of during the term of the securitization. certain financial companies with total the Dodd-Frank Wall Street Reform and (B) For any securitization that closes Consumer Protection Act. FHFA consolidated assets of more than $10 upon or following the applicable received no comments to its proposed billion to conduct annual stress tests to compliance date for regulations required amendments, published for comment in determine whether the companies have under Section 15G of the Securities an August 21, 2015 Notice of Proposed the capital necessary to absorb losses as Exchange Act, 15 U.S.C. 78a et seq., Rule. These amendments adopt the a result of adverse economic conditions. added by Section 941(b) of the Dodd- proposed amendments without change Each regulated entity is covered by this Frank Wall Street Reform and Consumer to modify: The start date of the stress Dodd-Frank Act requirement. FHFA’s Protection Act, the documents creating test cycles from October 1 of a calendar regulation, located at 12 CFR part 1238, the securitization shall instead require year to January 1 of the following requires each regulated entity to retention of an economic interest in the calendar year; the dates for FHFA to conduct an annual stress test based on credit risk of the financial assets in issue scenarios for the upcoming cycle; scenarios provided by FHFA and accordance with such regulations, the dates for the regulated entities to consistent with FHFA prescribed including the restrictions on sale, report the results of their stress tests to methodologies and practices. The rule FHFA; and the dates for the regulated requires the annual stress test period to pledging and hedging set forth therein. entities to publicly disclose a summary begin October 1 of one year and end (C) Notwithstanding paragraph of their stress test results for the September 30 of the next year, which (b)(5)(i)(A) of this section, for any severely adverse scenario. These coincided with the testing period securitization that closes following ll amendments align FHFA’s rule with established by Federal Reserve Board llllll November 24, 2015 and rules adopted by other financial (FRB) regulations for its Dodd-Frank Act prior to the applicable compliance date institution regulators that implement stress testing. for regulations required under Section the Dodd-Frank stress testing FHFA’s regulation also requires that 15G of the Securities Exchange Act, 15 requirements. the Agency issue to the regulated U.S.C. 78a et seq., added by Section entities stress test scenarios that are DATES: Effective January 1, 2016. generally consistent with and 941(b) of the Dodd-Frank Wall Street FOR FURTHER INFORMATION CONTACT: Naa comparable to those developed by the Reform and Consumer Protection Act, at Awaa Tagoe, Senior Associate Director, FRB not later than 15 days after the FRB the option of the sponsor, the Office of Financial Analysis, Modeling publishes its scenarios.4 Each regulated requirements of paragraph (b)(5)(i)(B) of and Simulations, (202) 649–3140, entity is required to report the stress test this section may be satisfied if (in lieu naaawaa.tagoe@fhfa.gov; Stefan of the requirement set forth in paragraph results to FHFA and the FRB and Szilagyi, Examination Manager, publicly disclose a summary of the (b)(5)(i)(A) of this section) the FHLBank Modeling, FHLBank Risk stress test results for the severely documents creating the securitization Modeling Branch (202) 649–3515, adverse scenario. The reporting date for require retention of an economic stefan.szilagy@fhfa.gov; Karen Heidel, the Enterprises is on or before February interest in the credit risk of the financial Senior Counsel, Office of General 5, and for the Banks it is on or before assets in accordance with the Counsel, (202) 649–3073, karen.heidel@ April 30.5 The date for each Enterprise requirements of the Section 15G fhfa.gov; or Mark D. Laponsky, Deputy mstockstill on DSK4VPTVN1PROD with RULES regulations as though such regulations General Counsel, Office of General 1 Federal Housing Enterprises Financial Safety were then in effect. Counsel, (202) 649–3054, and Soundness Act of 1992, as amended by the mark.laponsky@fhfa.gov. The telephone Housing and Economic Recovery Act of 2008, 12 * * * * * U.S.C. 4501, et seq. number for the Telecommunications 2 12 U.S.C. 4513(a)(1)(B). Dated at Washington, DC, this 22nd day of Device for the Hearing Impaired is (800) 3 78 FR 59219 (September 26, 2013). October, 2015. 877–8339. 4 12 CFR 1238.3(b). By order of the Board of Directors. SUPPLEMENTARY INFORMATION: 5 12 CFR 1238.5(a). VerDate Sep<11>2014 23:14 Nov 23, 2015 Jkt 238001 PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 E:\FR\FM\24NOR1.SGM 24NOR1


Document Created: 2015-12-14 14:09:09
Document Modified: 2015-12-14 14:09:09
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionFinal rule.
DatesEffective January 25, 2016.
ContactPhillip E. Sloan, Counsel, Legal Division (703) 562-6137; or George H. Williamson, Manager, Division of Resolutions and Receiverships (571) 858-8199.
FR Citation80 FR 73087 
RIN Number3064-AE32
CFR AssociatedBanks; Banking; Bank Deposit Insurance; Holding Companies; National Banks; Participations; Reporting and Recordkeeping Requirements; Savings Associations and Securitizations
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