Comments will be brief in light of the US holiday.

Risk retention rules for marketplace lending took force this past week. Risk retention rules were introduced as a part of the Dodd-Frank regulation to promote an alignment of interests between sponsors and investors of securitization.

Risk retention has slowed the pace of issuance and lending in CLO and leveraged loan markets. Issuers and sponsors are hopeful for regulatory relief on risk retention in the incoming administration. We refer readers to our PeerIQ Goes to Washington letter for more insight on the regulatory outlook.

We note that risk retention will have no meaningful impact to balance sheet lenders whose business model is to retain risk (in part to improve execution through “skin-in-the-game”).

The risk retention rule slows down the capital velocity for thinly-capitalized issuers whose primary strategy is to purchase whole loans, securitize loan pools, book gains on sale, distribute residual interests, and recycle sales proceeds. Further, the combination of risk retention and current (and impending) regulatory capital charges will reduce the willingness of banks to sponsor securitizations.


  • LendIt on March 6-7 in New York.

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