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

42 Pages Posted: 14 Feb 2017 Last revised: 15 Nov 2021

See all articles by Jan Pieter Krahnen

Jan Pieter Krahnen

Goethe University Frankfurt

Christian Wilde

Goethe University Frankfurt - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2021

Abstract

Relying on a hand-collected data set of European asset securitizations, we analyze risk
retention, a key regulatory reform requirement after the global financial crisis. We find today’s
ABS markets to be characterized by significant retention opacity, caused by differences
in legal retention options and retained portions. To improve the transparency of effective,
rather than nominal, risk retention in the market, we propose a new, simple metric that
captures the share of expected loss retained by the issuer. As to policy conclusions, we
suggest to change the existing regulation by dropping the mandatory minimum retention
and replacing it with a requirement for full transparency about effective risk retention.

Keywords: Structured finance, ABS, STS (simple, transparent, and standardized securitizations), regulation, retention, Dodd-Frank Act

JEL Classification: G28

Suggested Citation

Krahnen, Jan Pieter and Wilde, Christian, Skin-in-the-Game in ABS Transactions: A Critical Review of Policy Options (September 8, 2021). SAFE Working Paper No. 46, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 549/2018, Available at SSRN: https://ssrn.com/abstract=2916633 or http://dx.doi.org/10.2139/ssrn.2916633

Jan Pieter Krahnen (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Christian Wilde

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

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