Risk Retention in the European Securitization Market: Skimmed by the Skin-in-The-Game Methods?

48 Pages Posted: 3 Aug 2023

See all articles by Vivian M. van Breemen

Vivian M. van Breemen

European Central Bank (ECB); Nyenrode Business University

Claudia Schwarz

European Central Bank (ECB)

Dennis Vink

Nyenrode Business University

Date Written: August, 2023

Abstract

We empirically investigated the impact of regulatory risk retention methods on credit ratings and pricing at issuance using a sample of European securitization tranches issued in the period 2011-2021. European regulation is based on the assumption that all risk retention methods homogenously align incentives and interests between originators and investors. We investigated the impact of these methods on the pricing of securitization tranches and found that investors adjust the risk premium at issuance for tranches based on different risk retention methods. We also found that credit ratings (discrepancy) differed depending on the risk retention method used. Finally, we gained a deeper insight into the risk retention methods chosen over time and concluded that originators take deal complexity and capital relief characteristics into consideration when selecting a specific method.

Keywords: credit ratings, primary issuance spread, risk retention rule

JEL Classification: G12, G21, G24, G28

Suggested Citation

van Breemen, Vivian M. and Schwarz, Claudia and Vink, Dennis, Risk Retention in the European Securitization Market: Skimmed by the Skin-in-The-Game Methods? (August, 2023). ECB Working Paper No. 2023/2837, Available at SSRN: https://ssrn.com/abstract=4529825 or http://dx.doi.org/10.2139/ssrn.4529825

Vivian M. Van Breemen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

Claudia Schwarz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Dennis Vink

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

HOME PAGE: http://www.dennisvink.nl

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