Skin-in-the-game in ABS transactions: a critical review of policy options

This paper applies the theory of structured finance to the regulation of asset backed securities. We find the current regulation in Europe (Article 405 of the CRR) and the US (Section D of Dodd-Frank Act) to be severely 
This paper applies the theory of structured finance to the regulation of asset backed securities. We find the current regulation in Europe (Article 405 of the CRR) and the US (Section D of Dodd-Frank Act) to be severely flawed with respect to its key intention: the imposition of a strict loss retention requirement. While nominal retention is always 5%, the true level of loss retention varies across available retention options between zero loss retention and full loss retention at the extreme ends. Based on a standard model of structured finance transactions, we propose a new risk retention metric RM measuring the level of an issuer’s skin-in-the-game. The new metric could help to achieve a better implementation of CRR/CRD-IV and DFA, by making disclosure of the RM-number compulsory for all ABS transactions. There are also implications for the operation of rating agencies. On a general level, the RM metric will be instrumental in achieving simplicity and transparency in securitizations (STS).
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Metadaten
Author:Jan Pieter Krahnen, Christian Wilde
URN:urn:nbn:de:hebis:30:3-429042
URL:https://ssrn.com/abstract=2916633
URL:http://safe-frankfurt.de/de/policy-center/publikationen/detailsview/publicationname/skin-in-the-game-in-abs-transactions-a-critical-review-of-policy-options.html
DOI:http://dx.doi.org/10.2139/ssrn.2916633
Parent Title (English):SAFE policy white paper series, 46
Series (Serial Number):SAFE white paper series (46)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2017/02/27
Tag:ABS; Dodd-Frank Act; STS (simple, transparent, and standardized securitizations); capital; regulation; retention; structured finance
Issue:February 6, 2017
Pagenumber:25
HeBIS PPN:400941872
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G2 Financial Institutions and Services
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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