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US regulator hits out at new securitisation requirements 

March 3, 2016

Joe Rennison, The Financial Times

A senior US regulator has slammed incoming rules that will require managers of bonds backed by mortgages and other loans to retain 5 per cent of the credit risk of new deals, calling for an investigation into the impact the requirements are having on the securitisation industry.

Securitisation is a broad term for packaging loans and other collateral into bonds, where slices of the debt with varying degrees of risk are then sold to investors. The more risky “tranches” offer the chance for higher returns.

Regulators have sought to overhaul the industry after these securities played a central role in the financial crisis. Among the new measures are rules requiring the banks and other parties that structure these deals to have “skin in the game”, by owning at least 5 per cent of the economic interest of any new bonds.

The only exception to this rule is for bonds backed by so-called qualified residential mortgages (QRM), which have to meet higher lending standards introduced after 2008.

Michael Piwowar, one of three commissioners of the Securities and Exchange Commission, pleaded innocence as he delivered the keynote speech at the ABS Vegas conference, one of the largest conferences for the securitisation industry, saying that because he voted against the risk retention rules he should not be blamed for their introduction. Read more

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