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FDIC proposes new rules on asset-backed securities

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WASHINGTON — Federal banking regulators on Tuesday proposed stricter rules for asset-backed securities, the bundles of loans that helped spark the market collapse in 2008 and the near-meltdown of the financial system.

The board of the Federal Deposit Insurance Corp. voted 3-2 to propose new disclosure, risk-holding and other requirements for banks involving asset-backed securities.

The securities, which may contain mortgage, credit card or auto loans, would have to meet the new requirements so the government wouldn't seize them if the bank failed.

Banks would be required in most cases to hold at least 5 percent of the securities on their own books to qualify for the guarantee against seizure by the government. The idea is that banks with such exposure to risk would be more careful about properly screening borrowers.

The new disclosure requirements for securities tied to home mortgages would be more extensive than for other types.

The proposed new rules would be open for public comment for 45 days after which the FDIC could formally adopt them, possibly with changes.

The FDIC move complements new rules proposed last month by the Securities and Exchange Commission that would impose new disclosure and risk-retention requirements for the Wall Street firms that package and sell asset-backed securities.

The two FDIC board members who head Treasury Department banking agencies opposed the proposal. John Dugan, the U.S. comptroller of the currency, whose office regulates national banks, said the changes could "create an unlevel playing field" that would unfairly impose requirements on banks that wouldn't have to be met by financial institutions that aren't federally insured banks but which also participate in the market for asset-backed securities.

Provisions in the financial overhaul legislation now before Congress would establish new risk-retention and other requirements for asset-backed securities.

"I think the FDIC should wait to see what Congress directs the agencies to do," Dugan said before the vote.

Also voting against the proposal was John Bowman, acting director of the Office of Thrift Supervision.

But FDIC Chairman Sheila Bair said the agency's proposal and that of the SEC "are very consistent" with the financial overhaul legislation. "We do need to act," Bair said. "We are trying to strike a middle ground here."

Investors are starting to come back into the moribund asset-backed securities market and new rules must be in place, Bair said.