I. Executive Summary
On October 6, 2017, the U.S. Department of the Treasury released a report on the regulation of U.S. capital markets (the Report).1 The Report addresses securitization markets (among many other subjects).
The Report recommends regulatory changes or review in four areas related to securitizations:
- Capital Requirements—Bank capital requirements should be reduced or, in certain cases, reviewed, in order to better align those requirements with underlying securitization risks.
- Liquidity Requirements—Regulators should consider allowing certain high-quality securitized obligations to be counted by banking organizations against bank liquidity requirements.
- Risk Retention Requirements—Risk retention requirements should be revised to expand the exemptions available for certain types of securitizations, and one federal agency should be designated by Congress for related rulemaking.
- Disclosure Requirements—Reporting requirements for publicly offered securitizations should be reviewed and recalibrated and should not be extended to Rule 144A offerings or additional asset classes.
The recommendations are consistent with the Report’s characterization of the “counterproductive” treatment of securitization as “high-risk.” The Report states that “securitization, when undertaken in an appropriate manner, can be a vital financial tool to facilitate growth in our domestic economy.”
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