Financial Regulatory Forum

Key U.S. regulatory head warns on securitization rules

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.

US bank regulator: proprietary trading not at core of crisis

WASHINGTON, Feb 2 (Reuters) – The regulator of the largest U.S. banks said on Tuesday that proprietary trading was not at the root of the financial crisis and warned that excessive limits could impair some of banks’ central functions.

“It’s one thing to talk about pure proprietary trading as a business where the bank is in the business of taking bets on particular markets for its own account. And I understand the concern with that going forward, although this was not a big source of the problems that led to the crisis,” Comptroller of the Currency John Dugan told reporters on the sidelines of a securitization conference.

President Barack Obama late last month proposed new limits on big banks’ risk-taking, including curbs on commercial banks’ ability to engage in trading for their own profit instead of for clients.