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Garrett Introduces Amendment to Study FAS 166 and 167
Washington, Nov 18 -
Rep. Scott Garrett (R-NJ) offered an amendment to conduct a study of FAS 166 and 167 during the Financial Services Committee markup of the Financial Stability Improvement Act of 2009. This amendment would require the Financial Accounting Standards Board (FASB) to conduct a study of the combined impact by each individual asset-backed security of the new credit risk retention requirements contained in the bill and the new securitization accounting rules (FAS 166 and 167) and make statutory and regulatory recommendations for eliminating any negative impacts on the continued viability of the asset-backed securitization markets and on the availability of credit for new lending. This study would be required to be completed in 90 days and in coordination and consultation with the Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC). Garrett’s prepared remarks for the introduction of his amendment are included below: “Thank you Mr. Chairman. The U.S. capital markets have been experiencing significant financial market turmoil since last year that has required policymakers to examine and address many issues with careful and deliberate consideration. “One of the policies we have been debating and that I think many here agree with is the concept of risk-retention for lenders and entities involved in the securitization process. At the same time, the Financial Accounting Standards Board (FASB) is considering far-reaching changes to securitization accounting standards during this challenging time. “At the end of this year, FASB’s new securitization accounting rules, FAS 166 & 167 are scheduled to go into effect. These new rules will eliminate “Qualified Special Purpose Entities” which are the primary securitization accounting vehicle for asset-backed securities. They will also change the criteria for the sales treatment and consolidation of financial assets and apply all of these changes retroactively. “As we all know, we don’t legislate in a vacuum. We are not the only body setting rules. What we do here taken together with other changes might compound problems or have serious unintended negative consequences. As regulators and policymakers continue to examine the state of our financial market and cautiously contemplate improvements, changes in accounting standards is another aspect that we must take account for. “The new securitization requirements in this legislation and the changes by FASB to the securitization accounting rules will undoubtedly impact BOTH U.S. financial sector AND securitization – which provides substantial financing options to consumers and businesses. “For example, the $9 trillion U.S. securitization markets (including commercial and residential mortgage loans, student loans, automobile loans, credit card debt, etc.) currently do not “consolidate” the issuing entities used in securitizations. But, proposed changes could require consolidation by many if not all of these entities, which will impact BOTH capital AND liquidity. “As such, it is critical that policymakers and market participants fully examine all policy options and implications of any changes to securitization during these challenging times. “Recently, when asked about the possible impact of the changes in accounting rules combined with risk-retention requirements, Federal Reserve Board Member Elizabeth Duke noted: “If the risk retention requirements, combined with accounting standards governing the treatment of off-balance-sheet entities, make it impossible for firms to reduce the balance sheet through securitization and if, at the same time, leverage ratios limit balance sheet growth, we could be faced with substantially less credit availability. I’m not arguing with the accounting standards or the regulatory direction. I am just saying they must be coordinated to avoid potentially limiting the free flow of credit... As policymakers and others work to create a new framework for securitization, we need to be mindful of falling into the trap of letting either the accounting or regulatory capital drive us to the wrong model. This may mean we have to revisit the accounting or regulatory capital in order to achieve our objectives for a viable securitization market.” “So, this amendment would simply require the Board in 90 days and in coordination and consultation with the OCC, OTS, FDIC and SEC to conduct a study of the combined impact by each individual asset-backed security of the new credit risk retention requirements contained in the bill and the new securitization accounting rules (FAS 166 & 167) and make statutory and regulatory recommendations for eliminating any negative impacts on the continued viability of the asset-backed securitization markets and on the availability of credit for new lending. “Again, given the potential impact on our financial markets and consumers seeking credit, it is imperative that all policymakers and market participants have a better understanding of how these combined changes will impact the market. “Thank you for your consideration and I would ask that all members support this amendment. I yield back.”