Financial Services Alert

Citing significant weaknesses in asset securitization practices reviewed during recent examinations, the 4 federal banking agencies published interagency guidance on asset securitization activities. More specifically, the guidance highlights the need to ensure that: (1) independent risk management processes are in place to monitor securitization pool performance on an aggregate and individual transaction level; (2) conservative evaluation assumptions and modeling methodologies are used to establish, evaluate, and adjust the carrying value of retained interests; (3) audit or internal review staffs periodically review data integrity; (4) accurate and timely risk-based capital calculations are maintained, including recognition and reporting of any recourse obligations; (5) internal limits govern the maximum amount of retained interests as a percentage of total equity capital;