Debt Securities: How Will New Changes Affect the Asset-Backed Bond Market & Investors?

Last week Sheila Bair, as Chairman of the Federal Deposit Insurance Corporation (FDIC), boldly announced that until banks espouse stricter guidelines for issuing bonds backed by consumer debt, the government assistance currently enabling these asset-backed securities will not be lessened, as reported by Bloomberg News.

Bonds such as those backed by car loans and credit-card payments make up the specific market being discussed, and the FDIC has scheduled to imminently vote on new voluntary restrictions that banks will be expected to abide by in exchange for favorable treatment from the FDIC itself.

How Will The Proposed Changes to the Bond Market Impact Investors?

December 15 is the appointed day for further discussion and the official FDIC-vote with approved changes expected to take effect as early as the end of March. Although the nation will be forced to speculate until then on how bond market investors will truly be affected by any changes made by the FDIC, Sheila Bair is already speaking out.

More Confidence for Investors. Bair has made her current frustrations very clear, reporting to Bloomberg that "nobody has any confidence in the securities" and the act of institutions simply conducting business as usual in this industry "doesn't work any more." Looking to revamp the bond market, Bair sees her plans as a way to give private investors reason to feel safe again.

More Accountability from Bank Lenders. At the heart of Bair's vision is the agenda to have federally insured banks and thrifts more accountable by retaining some ownership interest in backed securities and disclosing more information about the actual debt that backs these bonds. Although the proposal in question simply suggests guidelines instead of enforces them, there is talk of "favorable regulatory treatment" for institutions who abide by the stricter standards. Bair realizes imposing specific conditions on these FDIC-incentives will likely be controversial, but sees it as irresponsible to not try to do something in the securitization market.

About the FDIC & Chairman Sheila Bair

As an agency of the federal government, the Federal Deposit Insurance Corporation acts independently of other operations in preserving and promoting public confidence in the United States financial system: insuring deposits, supervising banks, examining legal compliance with consumer protection laws, and so on. Sheila Bair has served as the Chairman of the FDIC since the summer of 2006.

You can locate official changes in FDIC policies in the "Financial Institution Letters" section of the agency's website which updates bankers in regards to new policies, procedures, and available products. Although directed at institutions, these letters can additionally, and effectively, inform consumers and private investors.

Sources:

Dawn Kopecki, "Asset-Backed Bond Market Must Embrace Stricter Rules, Bair Says." Bloomberg.com.

"FDIC: Board of Directors & Senior Executives." FDIC.gov.

"FDIC: Frequently Asked Questions for News & Events." FDIC.gov.

"FDIC: Who is the FDIC?" FDIC.gov.