Verlag:
European Banking Institute e.V., Frankfurt am Main, Germany
The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-to-distribute model, associated with securitizations and the financial crisis of 2008. This paper argues that besides its original financial stability...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
VS 636
Fernleihe:
keine Fernleihe
The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-to-distribute model, associated with securitizations and the financial crisis of 2008. This paper argues that besides its original financial stability rationale, the rule has positive spillovers on debt governance and specifically on the incentives to monitor, the design of covenants and the lender’s stance during renegotiation and bankruptcy (the ‘empty creditor’ problem). Risk retention in true sale securitizations makes the strongest case for debt governance, although the existence of various options of retention appears to be associated with varying incentives. The mechanism and effects of risk retention on synthetic securitizations remain ambivalent, given the perverse incentives associated with over-insurance (negative economic ownership). However, the upcoming restriction of double hedging for synthetic STS transactions is a positive development
