WASHINGTON, Feb 2 (Reuters) – A key U.S. bank regulator on Tuesday voiced concerns about proposals that would require securitizers to keep “skin in the game,” saying rigid rules are not the best solution.
Comptroller of the Currency John Dugan, who regulates the nation’s largest banks, said forcing banks and other securitizers to meet mandatory risk retention requirements is an imprecise solution to improve the lax underwriting, which fueled the subprime mortgage crisis and subsequent financial meltdown.
President Barack Obama and House Democrats favor requiring banks and other securitizers of loans, such as mortgages, to retain on their books at least 5 percent of the risk of debt converted into securities and sold to investors.
That way lenders would have more of an interest in ensuring that borrowers they lend money to can pay it back, according to backers of the so-called 5-percent “skin in the game” rule.
The Senate has proposed a more strict 10-percent threshold for risk retention.
“Instead of going at the underwriting problem indirectly through ‘skin-in-the-game’ requirements, why not attack it directly?” Dugan said in prepared remarks to a securitization conference.