The Office of the Comptroller of the Currency on Wednesday issued new risk-based exam guidelines for national banks that securitize loans.
The 92-page handbook breaks down the risks posed by asset securitization into six categories and suggests how banks should manage these risks.
The biggest risk occurs when banks, attracted by market demand, begin to make subprime loans simply to securitize them. These loans are generally riskier than those traditionally securitized, such as credit card or auto loans, said Michael L. Brosnan, the agency's director of market and Treasury risk.
"The market has a real appetite for these securitized loans, but banks can find the servicing involved with these credits requires a very different skill set," Mr. Brosnan said. "Banks have to think about why they are entering a business and not be afraid to just say no."
Some national banks have entered the securitization business without sufficient computer systems to handle the task, Mr. Brosnan added.
"We have seen some institutions that find their computer systems can't put out the information required by investors and others that demand monthly reports on how these credits are performing," he said. "It can be embarrassing and cost the bank a lot of money."
Under the new guidelines, examiners will ensure that national banks have adequate expertise, employees, and computer systems to handle their securitization operations.
The handbook also includes a guide for banks that want to securitize assets for the first time.
It explains accounting, legal, and tax issues, as well as the basic structures of asset-backed securities.
