As Congress begins work that could repeal Dodd-Frank’s risk-retention rules, the Federal Reserve Bank of Atlanta has assessed the extent to which securitization really skews risk alignment. If it does, then risk retention makes the sense postulated by Dodd-Frank’s sponsors; if not, then risk retention only curtails securitization and increases “dependence on the U.S. Government or, over time, shadow banks.” Although the Atlanta paper is limited to mortgages and notes the need for lots more data, its conclusions demonstrate that there should be considerable doubt that risk retention would do any good for sustainable, sound secondary markets and they worry about its unintended consequences.
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