Financial Reform Up-date: Risk Retention, FAS Standards & Covered Bonds
Here is an up-date from the CREF-C on the joint committee charged with reconciling the House and the Senate financial reform bills.
The summary focuses on three topics:
- risk retention in CMBS deals
- FAS rules 166 and 167
- covered bonds
The CREF-C up-date:
To begin, House Chairman Barney Frank (D-Mass.) presented a "House offer" that would significantly alter the risk "retention" provision, including language in both the House and Senate-passed bills that recognizes the unique nature of the commercial mortgage market.
Senate Chairman Chris Dodd (D-Conn.) counter-offered by accepting most all of the House offer, but Senate conferees explicitly rejected the House request to strike Senate-passed amendments offered by Sen. Mike Crapo (R-Idaho) related to "commercial mortgages" and by Sen. Mary Landrieu (D-La.) to create a "qualified mortgage" exemption. The risk retention provision remains outstanding, as negotiators try to break the stalemate and reach agreement on the final provision.
Separately, the Conference Committee adopted an amendment offered by Rep. Scott Garrett (R-N.J.) that would require financial regulators to examine and report on the combined impact of new accounting standards (FAS 166 and 167) and other regulatory changes (such as a "retention" mandate) on credit availability, prior to any rulemaking. Under the provision, the Federal Reserve (working with other agencies) would have 90 days to report its findings to Congress with recommendations on statutory and regulatory changes that could be made to lessen the impact on credit availability.
Lastly, House conferees passed another amendment by Rep. Garrett that would provide a statutory framework to facilitate a U.S. covered bond market, which explicitly includes commercial mortgages and CMBS as forms of eligible collateral. The "House offer" on covered bonds – which is supported by Sen. Bob Corker (R-Tenn.) – is now being considered by Senate conferees, as well as financial regulators (Treasury, FDIC, and others) that have raised questions about its execution.
The Conference Committee meets this afternoon to consider these and other items. Conferees hope to conclude their work to reconcile the two bills this week, at which time any Conference report would need final approval by the House and Senate.
Stay tuned.
