The Financial Stability Oversight Council has warned that risk-retention requirements that are too stringent “could constrain lending” and have a negative impact on credit. In a study mandated by the Dodd-Frank Act on risk retention, the FSOC stated that “risk retention serves as an important tool that, if properly structured, has the potential to mitigate some of the risks that we’ve seen in the past and promote safe and efficient lending.” The 35-page report concluded that while there are benefits of forcing an issuer to have “skin in the game,” “it is important to design a risk retention framework that maximizes the benefits of asset-backed securitization as a source of credit formation and minimizes the inherent risks of an originate-to-distribute model.
Click here to read the release from the Department of the Treasury.