Wall Street Group Files Lawsuit Over Risk Retention

MarketWatch Pulse

A Wall Street trade group is challenging a key plank in the Dodd-Frank financial-reform law that was designed to reduce risky loans. The Loan Syndications and Trading Association filed a lawsuit against the Federal Reserve and Securities and Exchange Commission, arguing the risk-retention rule at issue punishes an industry that played little role in the financial panic of 2008. The rule requires managers of certain collateralized securities to retain 5% of the amount of the loan, a move meant to deter risky behavior by ensuring that lenders have some "skin in the game." CLOs are a form of security backed by a pool of commercial or personal loans. Nearly $100 billion in CLOs were issued in 2013, acccording to J.P Morgan.

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