Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149752
Authors: 
Krahnen, Jan Pieter
Wilde, Christian
Year of Publication: 
2017
Series/Report no.: 
White Paper Series 46
Abstract: 
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 reten- tion 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).
Subjects: 
structured finance
ABS
STS (simple, transparent, and standardized securitizations)
regulation
retention
capital
Dodd-Frank Act
JEL: 
G2
Document Type: 
Working Paper

Files in This Item:
File
Size
330.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.