2008-07-28forbes.com

But the FDIC, facing rising bank defaults and concerned about possible risks to the $53 billion federal deposit insurance fund, wants to limit covered bond issuance to 4% of a bank's liabilities.

The agency has a say in the formation of a covered bond market because it can decide whether to renege on the bonds in a bank liquidation.

...

"The FDIC is concerned that unrestricted growth, while the FDIC is evaluating the potential benefits and risks of covered bonds, could excessively increase the proportion of secured liabilities to unsecured liabilities," the agency said. In other words, Back off my insurance fund. The agency did say it would consider revising its guidance after it has a chance to evaluate the effect of covered bonds on banks.

What do you know, the FDIC doesn't want to be left with the mess they might get if Wall Street confiscates the high-quality assets behind covered bonds, leaving the FDIC with the garbage. Still, politics rules at the end of the day... we expect the FDIC to capitulate just like the OFHEO did on Fannie and Freddie restrictions.

Banks are behind the plan, however.



Comments: Be the first to add a comment

add a comment | go to forum thread