There’s something odd in this Wall Street Journal article about Tim Geithner’s meddling in the affairs of the independent regulators.
Not the infighting and turf wars within the Financial Stability Oversight Council — that was bound to happen sooner or later. Rather, it’s the specific issue in which Treasury apparently decided to involve itself that is peculiar.
From the WSJ:
On Sunday, a senior Treasury Department official forwarded an email from Mr. Geithner to roughly a dozen other government officials, people familiar with the matter said. In the message, Mr. Geithner asked for feedback on a planned FDIC rule on securitizations.
He offered two options: The FDIC could proceed but have the rule conform to standards on which all regulators would later agree; or the FDIC could delay any decision for six months while regulators conferred.
Treasury officials called several regulators after the email was sent and urged them to choose the latter option, amid concerns that the FDIC’s rule could strangle the already weak securitization market for mortgages.
The new policy would require companies to retain at least 5% of securitized assets they sold in order to qualify for certain legal protections. The goal is to avoid the precrisis problem in which banks packaged worthless mortgage assets and passed them along to other investors. The new rules are effective Dec. 31.
As we reported on Monday, the FDIC obviously didn’t listen, and proceeded with its new safe harbour provisions. (These are rules that a bank issuer of asset-backed securities must adhere to in exchange for the FDIC’s agreeing not to take over those securities if the bank ultimately fails. Without the protection, the securities would lose value.)
Included among the provisions was the 5 per cent risk-retention rule. And yes, it provoked the expected backlash from securitisers.
But this is what’s strange: Risk-retention was already part of the SEC’s proposed changes to Reg AB. And the Dodd-Frank bill explicitly orders the SEC, FDIC, Fed, and Office of the Comptroller of Currency to agree on rules in which a securitiser must retain the 5 per cent. The only thing the FDIC did on Monday was to go along.
There is likely to be plenty of squabbling among regulators as they collaborate to write the many rules left unwritten by Dodd-Frank. Risk-retention, however, seemed a done deal, and one on which the SEC and FDIC worked harmoniously.
Maybe Treasury wanted to buy time to let the other regulators push for certain exemptions, or for a delayed implementation — but for the most part, this battle was long over.
So why would the Treasury choose to fight it now? Something not quite right about this, but we don’t know what it is.
Related links:
Infighting besets financial stability oversight council – WSJ
The FDIC considers safe harbours (again) – FDIC