A banking organization’s management
should ensure that documents governing securitizations it sponsors do not
include any covenants related to supervisory actions or thresholds. Effective
immediately, the use of covenants that provide for the early amortization of a
securitization or compel the transfer of servicing as a result, directly or
indirectly, of the occurrence of a supervisory action or event will, under
appropriate circumstances, be criticized as an unsafe and unsound banking
practice. Moreover, banking organization management is encouraged to amend,
modify, or remove these covenants from existing transactions. Any impediments a
banking organization may have to taking such actions should be documented and
discussed immediately with its Reserve Bank. |