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By risk treatment, we refer to the "process of selection and implementation of measures to modify risk…measures may include avoiding, optimizing, transferring, or retaining risk" [ 4].
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The market is going to be looking for the ability to retain risk, refinance counterparties and so on.
In some cases they can retain risk by holding onto mortgages that are deemed identical to those being securitized.
One bill proposed Tuesday would make lenders retain risk even when they sell off loans to Fannie and Freddie.
Six federal agencies on Wednesday issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions.
However, companies wanting to use captives to retain risk need to have sufficient liquidity to cover the losses they are responsible for.
If the Q.R.M. definition is as tight as now seems likely, that means banks would have to retain risk even on some loans guaranteed by those agencies.
One issue where banks appear to get most of what they asked for was on the question of which institution had to retain risk.
They seem to assume that no one will ever make a mortgage loan if they have to retain risk, so qualified residential mortgages should basically include every loan anyone would ever dream of investing in.
"That's doable," he says.There is broad agreement on how a revived securitisation market would work (high-quality assets, simple products, some retained risk on the part of the issuer).
In the presence of the regulatory initial capital and the counterparty default risk, we investigate optimal reinsurance designs from an insurer's point of view and derive optimal reinsurance strategies that maximize the expected utility of an insurer's terminal wealth or minimize the VaR of an insurer's total retained risk.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com