House Panel Considers Risk Retention, Volcker Bills

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By Rob Tricchinelli

Feb. 24 — House Republicans are floating bills to pare back the risk retention rules created by the Dodd-Frank Act that were designed to avert future financial crises.

The House Financial Services Capital Markets Subcommittee debated two measures Feb. 24—one, H.R. 4166, would lessen the rule for collateralized loan obligations and another, not yet introduced, would exempt some commercial real estate loans from the rule.

“The risk retention rules under Dodd-Frank Act treat CLOs as a highly risky asset, perhaps because the then-majority thought anything with an acronym sounded risky,” Rep. Scott Garrett (R-N.J.), the subcommitee chair, said.

A third bill, H.R. 4096, would largely undo a Volcker Rule restriction barring associated investment advisers and private equity funds from having the same name.

Risk Retention

The Dodd-Frank risk retention rule, adopted jointly by federal regulators in October 2014, requires securitization sponsors to retain some of the risk in the instruments .

H.R. 4166 was introduced by Reps. Andy Barr (R-Ky.) and David Scott (D-Ga.). Under that bill, leverage restrictions would be sharply reduced for CLOs, but some qualified CLOs would be still be subject to credit risk retention rules.

The other risk retention draft, put forth by Rep. French Hill (R-Ark.), would exempt commercial real estate loans and some securitizations of those loans from the rules.

House Republicans have shown an appetite for financial regulatory rollbacks and these bills could gain traction in the chamber later this year, although their prospects are very dim in the Senate.

The bills would effectively eliminate “risk retention requirements for loan securitizations that do not meet strict underwriting standards,” Marcus Stanley, the policy director for Americans for Financial Reform, said at the hearing.

Volcker

The Volcker bill was introduced by Reps. Michael Capuano (D-Mass.) and Steve Stivers (R-Ohio).

“I consider myself a great defender and a great supporter of Dodd-Frank,” Capuano said. The bill “is a relatively simple fix to a relatively simple problem that I don't believe at all will jeopardize anybody,” he added.

The Volcker Rule, also created by Dodd-Frank, bans proprietary trading at banks and narrows their ability to invest in hedge and private equity funds.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com