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

31 Pages Posted: 14 Feb 2017 Last revised: 5 Feb 2018

See all articles by Jan Pieter Krahnen

Jan Pieter Krahnen

Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Center for Financial Studies (CFS); Centre for Economic Policy Research (CEPR)

Christian Wilde

Goethe University Frankfurt - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 7, 2017

Abstract

In response to the financial crisis, as a way to align incentives of originators and investors, new regulation in the US (Dodd-Frank) and the EU (CRR) requires issuers of asset backed securities to hold some skin-in-the-game, offering a set of options for risk retention. We propose an intuitive metric exposing effective risk retention and demonstrate that it varies widely across the available retention options. Requiring open disclosure of the metric, rather than demanding choice among arbitrarily specified and dissimilar retention options, would allow markets to price retention properly, and issuers to choose their desired retention level freely.

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 (December 7, 2017). 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)

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 33699 (Phone)
+49 69 798 33901 (Fax)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 30080 (Phone)
+49 69 798 30077 (Fax)

Center for Financial Studies (CFS) ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60629
Germany
+49 69 798 30050 (Phone)
+49 69 798 30077 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Christian Wilde

Goethe University Frankfurt - Department of Finance ( email )

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

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