Open Board Meeting October 22, 2014 | Summary and Q&A

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October 22, 2014
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Federal Reserve
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Open Board Meeting October 22, 2014

TL;DR

The board discusses the final rule on risk retention requirements in securitization markets to align the interests of sponsors and investors, with a focus on qualified residential mortgages.

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Key Insights

  • ๐Ÿ“ผ Risk retention requirements aim to align the interests of sponsors and investors by providing economic incentives for sponsors to monitor securitized assets' quality.
  • ๐Ÿ“ผ The final rule includes exemptions for qualified residential mortgages and assets meeting credit risk standards, with specific options for different types of securitizations.
  • ๐Ÿคจ The final rule benefits from public input and addresses concerns raised by commenters, providing more flexibility in disclosures and removing overly restrictive cash flow restrictions.

Transcript

Transcript of Open Board Meeting October 22, 2014 CHAIR YELLEN. Good afternoon. I'd like to welcome our guests to the Federal Reserve today as we, along with five other federal agencies, take another important step in implementing the Dodd-Frank Act. And enhancing stability in the securitization markets. The final rule before the Board would requir... Read More

Questions & Answers

Q: What is the purpose of risk retention requirements in securitization markets?

Risk retention requirements aim to align the interests of sponsors and investors by incentivizing sponsors to monitor the quality of securitized assets.

Q: Which agencies collaborated to develop the final rule?

The final rule was developed on an interagency basis with the SEC, OCC, FDIC, HUD, and FHFA.

Q: What exemptions are included in the final rule?

The final rule includes exemptions for qualified residential mortgages and assets that meet credit risk standards. Additionally, securitizations guaranteed by Fannie Mae and Freddie Mac are exempt as long as they operate in conservatorship with capital support from the United States.

Q: How does the final rule impact securitization of leveraged commercial loans?

The final rule does not include a specific exemption for open market CLOs based on structural features. Instead, it implements an option for allocating risk retention to the lead arranger of leveraged loan syndications, promoting disciplined underwriting in the leverage loan markets.

Summary & Key Takeaways

  • The board discusses the importance of risk retention requirements in aligning the interests of sponsors and investors in securitization markets.

  • The final rule includes provisions for sponsors to retain an economic interest in the assets they securitize, with exemptions for qualified residential mortgages and assets that meet credit risk standards.

  • Enforcement authority over securitizers is primarily vested in the SEC, with the Federal Reserve responsible for securitizers that are state member banks or uninsured U.S. state branches of foreign banks.

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