The Federal Deposit Insurance Corp. advanced a proposal aimed at overhauling part of the $4 trillion asset-backed securities market and introduced a rule that would require the biggest U.S. banks to submit “funeral plans” to handle their possible collapse.
The FDIC board voted 3-2 on Tuesday to release for comment a measure requiring sellers of securitized loans to keep 5 percent of the credit risk in exchange for safe-harbor protection that makes the bonds more attractive to investors. The proposal aims to bolster a market whose collapse helped trigger the 2008 financial crisis, FDIC Chairwoman Sheila Bair said Tuesday.
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“Now is the time to put some prudent controls in place to make sure we don’t get into some of the problems we saw in the past,” Bair said at the board meeting.
JPMorgan Chase & Co., Bank of America Corp., and industry groups including the Mortgage Bankers Association and the American Securitization Forum pushed the FDIC to scrap or tone down the proposal after it was introduced in December, saying it could damp the U.S. economic recovery.
Comptroller of the Currency John Dugan and acting Director of the Office of Thrift Supervision John Bowman, members of the agency’s five-person board, opposed the measure, citing both potential threats to the economy and concern that the FDIC rule might conflict with steps being considered by lawmakers and the Securities and Exchange Commission.
