Newsletter Sept 2008: EU securitisation proposal has many negatives

The European Commission’s end-June proposals to deal with perceived failing in the structured finance market could have several negative consequences, concludes an analysis by the Fitch rating agency. Under this proposal, European banks could only invest in securitisations (or other risk transfer credit products) where the arranger or manager retained 10% of the exposure. The intention is to better align the incentives of the arrangers/managers with those of investors by obliging the former to retain an interest in the product (“keep some skin in the game”).