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In July, the Federal Deposit Insurance Corporation (the “FDIC”) proposed a change (discussed here and here) to certain provisions of its securitization safe harbor rule (the “Rule”) to eliminate the requirement that the securitization documents for non-grandfathered bank-sponsored securitizations not otherwise subject to Regulation AB (i.e. non-public transactions) require compliance with the disclosure and periodic reporting requirements of Regulation AB.   If adopted in its proposed form, this would significantly ease the compliance burden associated with non-public bank-sponsored ABS issuances, potentially resulting in a greater volume of such transactions.

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We continue our series on capital relief trades (CRTs) with a look at issues that arise under the Volcker Rule and U.S. risk retention rules in connection with structuring CRTs in the U.S.

Please be on the look-out for Part three of our CRT series in which Ed Parker, global practice head of Derivatives & Structured Products at Mayer Brown, and Merryn Craske, a partner in Mayer Brown’s Structured Finance Practice in London, will provide a UK perspective on CRTs, including the capital treatment and regulatory requirements for such transactions and the insurance and swap issues arising in connection with CRTs issued in the United Kingdom, as well as the European Banking Authority’s consultation paper on an STS framework for synthetic securitizations.

You can find Part two of our CRT series here.


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Today, we are kicking off a three part series discussing capital relief trades (CRTs)—often referred to as synthetic securitizations—which  are used by banks to transfer risk on reference pools of assets to non-bank investors, reduce the risk weight of assets held by such banks and improve capital ratios.

Historically, the CRT market has been dominated

In July, the Federal Deposit Insurance Corporation (the “FDIC”) proposed a change (discussed here) to certain provisions of its securitization safe harbor rule (the “Rule”), which relates to the treatment of financial assets transferred in connection with a securitization or participation transaction.  The proposed change would eliminate the requirement under the Rule that disclosure documents for bank-sponsored securitizations not otherwise subject to Regulation AB’s disclosure requirements (i.e. non-public transactions) comply with Regulation AB.   This could significantly ease the compliance burden associated with non-public bank-sponsored ABS issuances, potentially resulting in a greater volume of such transactions.

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California law restricts the types of instruments in which California cities, districts and other local agencies can invest public funds. Previously, among other requirements, Section 53601 of the California Government Code provided that these municipalities could only invest public funds in asset-backed securities and mortgage-backed securities when (i) issued by an issuer rated at least “A” or its equivalent for its debts by a nationally recognized statistical rating organization (an “NRSRO”) and (ii) such securities had a maximum maturity of five years or less. As described in the Local Agency Investment Guidelines issued by the California Debt and Investment Advisory Commission (available here), Section 53601 has been amended to both (i) eliminate the requirement that a securities issuer be rated at least “A” or its equivalent and (ii) revise the maximum maturity provision to require that asset-backed securities and mortgage-backed securities have a maximum remaining maturity of five years or less, as determined when the municipality acquires the investment.
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The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) requires the CFPB to prepare a biennial report to Congress regarding the consumer credit card market. On August 27th, the CFPB issued its fourth such report (previous reports were issued in 2013, 2015 and 2017) which describes the CFPB’s findings regarding, among other things, the