Regulation, CDO Exposures, and Debt Guarantees through the Financial Crisis

Collateralized debt obligations with asset backed securities as collateral (ABS CDOs) often getovershadowed in debates over causes of large commercial bank holding company (BHC) distressduring the 2007–2009 crisis. For BHCs, the Recourse Rule made holding the highest rated ABS CDO tranches more favorable by lowering required capital. Large BHCs that commented on preliminary Recourse Rule proposals or issued CDOs had higher average estimated debt guarantees after Q2 2008, reaching a peak of nearly $3.49 billion or $6.73 billion, respectively. From Q2 2008 to Q1 2009, among trading assets, only CDO holdings have a large positive association with higher estimated debt guarantees for BHCs