OCC 99-46 
Subject: Interagency Guidance on 	 	
	Asset Securitization Activities		
Description: Asset Securitization	
Date:	December 13, 1999		


TO: 	Chief Executive Officers of All National Banks, 
Department and Division Heads, and All Examining Personnel


The attached "Interagency Guidance on Asset Securitization 
Activities" was issued jointly by the Office of the 
Comptroller of the Currency, the Board of Governors of 
the Federal Reserve System, the Federal Deposit Insurance 
Corporation, and the Office of Thrift Supervision 
(the Agencies) on December 13, 1999.  The provisions 
included in this policy statement are effective immediately.

For several years, large commercial banks have been 
using asset securitization as an alternative method 
of funding balance sheet assets, improving financial 
performance ratios and generating fee income.  While 
the OCC continues to endorse the use of asset securitization 
as a tool to manage the bank's balance sheet and more 
efficiently meet customer needs, we remind bankers 
that such activity is only appropriate when properly 
managed.  During recent examinations, our examiners 
have noted an unacceptable number of national banks 
with risk management systems or internal control 
infrastructures insufficient to support the institution's 
securitization activities.  Particularly disturbing 
is the number of cases where the valuation of retained 
interests on the bank's balance sheet have not been 
in compliance with the standards prescribed in Statement 
of Financial Accounting Standard No. 125, "Accounting 
for Transfers and Servicing of Financial Assets and 
Extinguishments of Liabilities."  In addition, several 
banks have inaccurately reported their risk-based 
capital by failing to appropriately account for 
recourse obligations arising from securitization activities.

The attached statement highlights particular areas of 
weakness, including the board and senior management 
oversight.  The statement reiterates our expectation 
that critical components of an effective oversight 
program for asset securitization activities include:  
(1) independent risk management commensurate with the 
complexity of securitization activities, (2) comprehensive 
audit coverage, (3) appropriate residual interest 
valuation and modeling methodologies, (4) accurate 
and timely risk-based capital calculations, and (5) 
prudent internal limits to control the amount of 
equity capital at risk that is used to support 
securitization retained interests.

OCC examiners will continue to review asset securitization 
activities in national banks to ensure that the board of 
directors and senior management are complying with the risk 
management expectations detailed in this policy statement.  
In those cases where examiners identify weak risk management 
practices or lax internal controls, bank management will be 
directed to take immediate corrective action.  In situations 
where bank management cannot provide objectively verifiable 
support for the valuation of the retained interest, the 
asset will be classified as loss and disallowed as an asset 
of the bank for regulatory capital purposes. 

Additional guidance on OCC expectations for national 
banks involved in asset securitization activities can 
be found in the "Asset Securitization" booklet of the 
Comptroller's Handbook. 

Questions about the interagency statement or other 
policy issues related to asset securitization activities 
may be directed to Kathy Dick, Director, Treasury and 
Market Risk Division at (202) 874-5670.  Technical 
assistance can be provided by Greg Coleman or Jeffery 
Power at the same location.








Emory Wayne Rushton
Senior Deputy Comptroller
Bank Supervision Policy



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