Securitization and its Discontents

Regulators in the U.S. and Europe have called for quantitative risk retention requirements to address some of the shortcomings of securitized products, which contributed to the credit crisis but remain an integral component of financial markets. The paper explores the conflicts in the securitization framework and assesses the potential impact quantitative risk retention structures proposed by supervisors in the U.S. and the European Union may have on the capital utilization in the banking sector, and concludes that regulatory arbitrage will have an impact which retention structure is being implemented