Alert April 21, 2009

FRB Grants 23A Waiver for Transfer of MBS Paid for by Dutch Government

The FRB granted a waiver from Section 23A of the Federal Reserve Act to allow a thrift subsidiary of ING Groep, N.V. (“ING”) to transfer an 80 percent participation interest in a pool of Alt-A residential mortgage-backed securities (“MBS”) to a nonbank affiliate (“Affiliate”).  In exchange for the asset transfer, Affiliate would assign to the thrift its rights to a stream of fixed payments from the Kingdom of the Netherlands. 

The FRB stated that the transaction constituted a loan for purposes of Section 23A, and thus a covered transaction, because the thrift would transfer assets to Affiliate for a stream of future payments.  An exemption from Section 23A appeared appropriate in this circumstance, however, because in substance this was a transfer of risk from the thrift to the Netherlands.  The FRB noted that the interposition of Affiliate creates some risk (i.e., insolvency of Affiliate), however the parties had taken several steps to mitigate that risk, including the fact that Affiliate conducts minimal business, and that ING will guarantee the amounts due to the thrift under this arrangement.  The thrift also asserted that the transaction would provide public benefits by facilitating the Netherlands’ efforts to improve significantly the thrift’s capital position.