Legislation to give regulators new powers to protect the financial system from failures of large institutions also imposes high credit risk retention requirements on MBS and ABS securitizations.

The Financial Stability Improvement Act legislation that House Financial Services Committee chairman Barney Frank, D-Mass., worked out with Treasury secretary Timothy Geithner requires creditors to retain 10% or more of the credit risk when they sell or securitize loans. "Regulators can adjust the level of risk retention above or below 10%, but not lower than 5%," according to a summary of the bill.

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