In Tuesday’s meeting of the Federal Deposit Insurance Corp. (FDIC) Board, Chairman Jelena McWilliams and Board Member Martin Gruenberg – the only two appointed members of the board – stood on opposite sides of two key issues before the board. Those were: a final rule on recordkeeping for deposit insurance determination, and a proposed rule to amend the securitization safe harbor (a rule emanating from the Securities and Exchange Commission, SEC).
Below are key points from statements issued by each leader, read in full by both during the board meeting and released publicly following the meeting, illustrating their different approaches to the issues. The issue under consideration leads each section, with gently edited versions of comments from McWilliams and Gruenberg following:
Final rule: Recordkeeping for Timely Deposit Insurance Determination
MCWILLIAMS: Substantial compliance progress; rule’s features could be improved
“In the two years since the rule came into effect covered institutions have made substantial progress toward compliance. During this time it became clear that there are features of the rule that could be improved …
“On many issues covered in the proposal, including the optional one-year extension of time for compliance, we are finalizing the rule as proposed. On all issues, we carefully considered the comments received, and on several issues we made changes to our proposal to address concerns expressed by commenters …
“The goal of Part 370 remains unchanged: timely access to insured deposits is critical to maintaining public confidence in the banking system. As amended, the rule will continue to provide the FDIC with the ability to provide depositors at large failed banks with the same rapid access to their insured funds as it does in smaller resolutions.”
GRUENBERG: 3 reasons for voting against proposal; nothing changed in final
“I voted against that NPR (in March) for three reasons, all of which are applicable to the final rule. Those reasons are: first, a one-year delay in compliance with the rule; second, the weakening of the compliance requirements of the rule; and third, a presumption of approval for exceptions from compliance with the rule …
“… The requirements of this rule, as I noted, are critical to the orderly failure of a large, covered institution. There should not be a presumption of approval for exceptions for one institution based on exceptions granted to other institutions, even if the institution’s notification letter to the FDIC would need to include supporting information. In my view, the discipline provided by the FDIC’s responsibility to analyze and approve such a request, and reply in writing with an explanation, would assure the appropriate rigor of analysis that granting such an exception should warrant.”
Proposed rule: Amending the Securitization Safe Harbor Rule
MCWILLIAMS: Prudent for the FDIC to defer to SEC’s judgment
“The FDIC is applying an SEC disclosure rule in situations in which the SEC itself determined, after long deliberation, including an extensive rulemaking process, not to apply the disclosure rule. Because the SEC is the federal agency responsible for investor protections, it is prudent to defer to the SEC’s judgment in deciding when to apply their rules mandating disclosures to investors.
“The proposal we are considering today would remove one potential obstacle that IDIs (insured depository institutions) face in providing mortgage credit to homeowners. With respect to any concerns that this could lead to a repeat of practices that contributed to the financial crisis, regulatory requirements are dramatically different today than leading up to the crisis. Furthermore, as noted, concerns related to disclosures to investors are generally best addressed by the SEC, not the FDIC.”
GRUENBERG: Proposed rule falls short of explaining why it needs to be adopted
“An important consideration is that different regulatory agencies have different regulatory jurisdiction. The FDIC has regulatory jurisdiction over the rules applied in the resolution of failed IDIs, as the SEC has jurisdiction over disclosure requirements under the securities laws. In exercising their different responsibilities, the agencies may have to adopt rules addressing the same issues within their regulatory mandate. In those cases, those rules should be harmonized except where differences are appropriate to accomplish their different regulatory missions. For the FDIC’s safe harbor rule, the FDIC is setting the conditions that define how it will apply its receivership powers and thereby, what types of transactions will be entitled to the safe harbor protecting them from application of certain of those powers.
“The application of the FDIC’s Safe Harbor Rule to publicly and privately issued securitizations, particularly residential mortgage backed securitizations, was a response to one of the central causes of the financial crisis. If the FDIC proposes to eliminate the Regulation AB disclosure requirements of the Safe Harbor Rule that apply to private placements in the RMBS (residential mortgage backed securities) market, it has an obligation to identify clearly what in the disclosure requirements is an impediment to the market and why its elimination would not undermine the purposes of the FDIC’s Rule.
“The NPR before the FDIC Board today fails to do that.”
Statement of Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation, Notice of Proposed Rulemaking: Proposed Amendment to Securitization Safe Harbor Rule
Statement of Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation: Issuance of a Final Rule on Recordkeeping for Timely Deposit Insurance Determination
Statement by Martin J. Gruenberg, Member, FDIC Board of Directors, Notice of Proposed Rulemaking to Amend Securitization Safe Harbor Rule
Statement by Martin J. Gruenberg, Member, FDIC Board of Directors, Final Rule to amend “Recordkeeping for Timely Deposit Insurance Determination”