OCC 2002-21
OCC Bulletin
Subject:     Covenants Tied to Supervisory Actions in 
             Securitization Documents
Description: Interagency Guidance
Date:        May 23, 2002

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

The attached "Interagency Advisory on the Unsafe and 
Unsound Use of Covenants Tied to Supervisory Actions in 
Securitization Documents" 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 on May 23, 2002.  The purpose of this guidance 
is to alert both bankers and examiners to the safety and 
soundness implications of covenants associated with 
supervisory actions in securitization documents.  Recent 
examinations have uncovered covenants that use certain 
supervisory actions as triggers for early amortization 
events or the transfer of servicing.  Such covenants 
will, under appropriate circumstances, be criticized as 
an unsafe and unsound banking practice  because their 
trigger can create or exacerbate liquidity and earnings 
problems that can lead to further deterioration in the 
financial condition of the organization.  In addition, 
in the event such covenants relate to the appointment of 
a conservator or receiver, they may impede the ability of 
the conservator or receiver to take action in the best 
interest of the conservatorship or receivership.

For further guidance on asset securitization issues 
contact Greg Coleman, Treasury and Market Risk at 
(202) 874-2777, or Kelly Ballard, Treasury and Market 
Risk at (202) 874-4917. 


_______________________________		
Michael L. Brosnan					
Deputy Comptroller for
Risk Evaluation



Attachment
[ http://www.occ.treas.gov/ftp/bulletin/2002-21a.pdf ]