Moody's Corporate Overview and Financial Outlook

Corporate Overview | MIS Business Conditions | MA Business Conditions | Financial Review and Outlook | Appendix Regulatory Uncertainty Continues to Weigh on New Securitization Conditions Adopted Proposed >>> FAS 166/167 >>> SEC rule 17g-5 » Dodd-Frank Act >>> Requirement to consolidate ABCP on sponsor banks' balance sheet may lead to lower ABCP outstanding levels, when combined with potentially higher regulatory capital costs. Also affects credit card safe harbor provisions. May make sale treatment harder to achieve for CMBS. Requires NRSROS hired by arrangers to rate SF products to disclose information about rating engagement to other NRSROs so that they can develop unsolicited ratings » Requires retention of an unhedged (and untransferable) 5% credit risk of SF securities potentially dampening U.S. SF issuance. This may cause the SPV to stay on securitizer's balance sheet under FAS 167 if the securitizer manages the SPV in a way that substantially affects its performance >>> FDIC "safe harbor" treatment >>> >>> Basel II >>> Revised SEC Regulation AB FASB/IASB joint financial instruments accounting projects MOODY'S >>> Limited issuance impact, depends on how economical bank-sponsors of securitizations will consider safe harbor compliance, as compared to alternative financing sources Increases bank capital requirements for securitizations: - Triples capital requirements for resecuritizations in banking book Treats securitization exposures in trading book as if those were held in banking book, potentially resulting in significantly higher market risk capital charges Increases disclosure and may reduce issuance volume - Requires originators to file loan-level information with the SEC New requirements for shelf registrations, including 5% risk retention Requirement to disclose credit rating in registration statements was waived indefinitely » Requires nearly all financial instruments, including loans, to be carried at fair value. May create disincentive to hold securitized assets but conversely also would incentivize banks to securitize more of their loan portfolios MARCH 1, 2011 35

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