Skip to main content
U.S. flag
An official website of the United States government
Dot gov
The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.
The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.
This page is no longer active. Its content has expired or been rescinded by the FDIC.
Financial Institution Letter
Securitizations and Participations

SUBJECT: Proposed Policy Statement on the Treatment of Securitizations and Loan Participations After Appointment of the FDIC as Conservator or Receiver

The FDIC Board of Directors is seeking comment of the attached proposed "Statement of Policy Regarding the Treatment of Securitizations and Loan Participations Following Appointment of the FDIC as Conservator or Receiver." The proposed policy statement responds to certain legal and accounting issues affecting asset-backed securitizations and loan participations entered into by insured depository institutions. The FDIC will accept comments on the proposal through March 1, 1999.

Under generally accepted accounting principles (GAAP), one criterion for a transfer of financial assets to be accounted for as a sale is the "legal isolation" of the transferred assets. Financial assets are deemed to be legally isolated when they have been placed beyond the reach of the transferor and its creditors, even in the case of the bankruptcy of or the appointment of a receiver for the transferor. Insured depository institutions, accountants, and other parties have raised questions about whether this isolation test would be satisfied for securitizations and participations when the FDIC, as conservator or receiver, has the statutory power to repudiate or disaffirm the transfers. If the transferred assets are not sufficiently isolated from the insured bank or thrift, its creditors, or the receiver, the transfers would not qualify for sale treatment under GAAP and the transferred assets would continue to be reported as assets on the institution's balance sheet.

The proposed Statement of Policy responds to those questions by reassuring interested parties that, subject to certain conditions such as fraud, the FDIC, as conservator or receiver, will not seek to reclaim, recover, or recharacterize securitized financial assets or loan participations for the conservatorship or receivership. Accordingly, the policy statement should resolve the legal isolation issue for insured depository institutions. The proposed Statement of Policy confirms existing FDIC practice in dealing with securitization and loan participation transactions.

For more information, please contact Michael H. Krimminger, Senior Policy Analyst in the FDIC's Office of Policy Development (202-898-8950); Thomas Bolt, Counsel in the Legal Division (202-736-0168); or Robert Storch, Chief, Accounting Section, Division of Supervision (202-898-8906).

William F. Kroener III
General Counsel

Attachment: December 30, 1998 Federal Register, pages 71926-71928
( HTML or PDF , 27 Kb - PDF help or hard copy )

Distribution: All Insured Banks and Savings Associations

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-276-6003 or (703) 562-2200).

Last Updated: January 7, 1999