The public comment period has now closed on new regulatory proposals that financial firms retain some of the credit risk for the collateralized securities they issue—and as with all things related to the Dodd-Frank Act these days, critics abound.
The overall complaint was that the proposed rules, issued jointly by the Securities and Exchange Commission and five other financial regulators, leave too many details about calculating credit risk or granting exemptions unclear. Most questions centered around the creation of a new Section 15G of the Exchange Act, which would require issuers of asset-backed securities to retain at least 5 percent in the credit risk of the collateralized assets that undergird those ABS offerings. The regulation also prohibits transfer or hedging of that risk.
