As FINANCIAL MARKETS CONTINUE TO SUFFER THROUGH the subprime mortgage crisis and the U.S. economic downturn, the Federal Deposit Insurance Corp. (FDIC) cites the need for greater transparency in the structured finance market in a recent issue of its biannual Supervisory Insights publication. "FDIC-insured institutions are facing more formidable conditions than even a year ago," says Sandra Thompson, director of the FDIC's Division of Supervision and Consumer Protection.
According to the publication, policy-making groups across the globe are concerned with enhancing transparency and restoring confidence in securitization markets. Supervisory Insights describes disclosure concerns with complex structured securities that have generated significant write-downs and offers recommendations that could improve transparency. For example, the FDIC discourages banks with positions in complex securities from using credit ratings as a substitute for pre-purchase due diligence or as a proxy for ongoing risk monitoring.
Risks and fallouts from exotic mortgage products are other areas of concern in the current financial market, and under-writing weaknesses and potentially deceptive marketing practices are considered key contributing factors to this problem. Supervisory Insights...