Questions are emerging over the relevance of risk retention in the context of European non-performing loan securitisations. Given its utility in transferring risk on capital-intensive portfolios, securitisation could play a greater role in resolving Europe’s troubled loan burden if there was regulatory differentiation for such assets.
Vertical risk retention may make sense in terms of originating banks being required to sell the junior and mezzanine tranches of an NPL securitisation in order for the NPL portfolio to qualify for derecognition.
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