Skin-in-the-Game in ABS Transactions: A Critical Review of Policy Options

Skin-in-the-Game in ABS Transactions: A Critical Review of Policy Options

Jan Pieter Krahnen, Christian Wilde

Series number :

Serial Number: 
549/2018

Date posted :

January 22 2018

Last revised :

April 30 2021
SSRN Share

Keywords

  • structured finance • 
  • ABS • 
  • STS (simple • 
  • transparent • 
  • and standardized securitizations) • 
  • regulation • 
  • retention • 
  • Dodd-Frank Act

We compare mandatory risk retention, a cornerstone element of post-financial crisis regulation, in the US (Dodd Frank Act) and the EU (Capital Requirement Regulation). While minimum retention is uniformly five percent, realized risk retention varies significantly across jurisdictions and available options.

We analyze empirically for a sample of securitization transactions the choice among retention options and the retained portion. We find that in the EU, the legally imposed retention minimum is not binding for the majority of the transactions, in contrast to the US. To facilitate the disclosure of retained interest, we propose a comprehensive metric capturing effective risk retention, permitting a clean comparison across retention options

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Authors

Professor
Real name:
Jan Pieter Krahnen
Research Member
Center for Financial Studies (CFS), Leibniz Institute SAFE, Goethe University Frankfurt
Real name:
Christian Wilde