Asset Backed Security Issuers Will be Required to Keep Skin in the Game

Econintersect:  The Federal Reserve Board proposed a rule that would require sponsors of asset-backed securities (ABS) to retain at least 5 percent of the credit risk of the assets underlying the securities.  This rule is being jointly proposed from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, the Federal Housing Finance Agency, and the Department of Housing and Urban Development.

Comments are requested and must be received by June 10, 2011.

This rule would provide sponsors with various options for meeting the risk-retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In drafting the proposed rule, staff at the Federal Reserve Board and at the other agencies sought to ensure that the amount of credit risk retained is meaningful, while taking into account market practices and reducing the potential for the rule to negatively affect the availability and cost of credit to consumers and businesses.

To review the proposed rule – click here.