The European Union (EU) and U.S. regulators might be on the same page when it comes to trying to get the securitization market to be more risk averse. However, their different approaches have left a gap that needs to be eventually bridged, industry sources said .
For instance, the 5% risk retention, a topic that is a done deal under CRD Article 122a, will apply across the board regardless of the asset type or quality.
The Dodd-Frank Act has made exemptions where, in certain cases, some transactions would be exempted from the tariff. The act recognizes that some securitization assets and structures already apply some skin in the game that sometimes even exceeds the 5% suggested by regulators.
Panelists speaking at the American Securitization Forum's sunset seminar in London held today said that the EU regulators also recognize that risk retention can also go beyond the 5% for certain European securitization structures, but the EU offers no exemption. German regulators have gone even further and at the end of 2012 plan to implement a 10% risk weight to all securitizations, a move that they believe will deter investors from taking on risk.
Panelists said that it remains to be seen what effect seeing a greater number of exemptions from U.S. issuers will have on future investor participation.
"The EU has said that it understands that there are situations where risk retention is already incorporated, but it won't go further to actually make these deals exempt," a panelist said.