In January of this year, we alerted clients to ongoing regulatory review of REITs for possible systemic designation either on a firm- or sector-wide basis. As the Financial Times yesterday reported, work is moving well along, especially at the Federal Reserve Bank of New York, building on the fears regulators first voiced about REITs because of their reliance on repos and, thus, the fuel REITs could pour into a firesale of MBS. We expect near-term restraints on bank dealings with REITs, but rules governing them are also under active review.

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