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

32 Pages Posted: 14 Feb 2018

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: January 2018

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

JEL Classification: G28

Suggested Citation

Krahnen, Jan Pieter and Wilde, Christian, Skin-in-The-Game in ABS Transactions: A Critical Review of Policy Options (January 2018). CEPR Discussion Paper No. DP12619, Available at SSRN: https://ssrn.com/abstract=3106823

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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