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Credit Risk Measurement and Management
Credit Risk Measurement and Management
Medium
Under US Dodd-Frank risk retention rules for securitization, which of the following retention structures provides the strongest alignment of interests between the securitizer and investors?
A
Horizontal retention (first-loss equity piece), because the securitizer absorbs initial losses and thus has the greatest incentive to ensure loan quality
B
Vertical retention (5% of each tranche), because the securitizer is equally exposed to all levels of risk
C
L-shaped retention, because it combines the benefits of both horizontal and vertical
D
No retention is needed if the securities carry a AAA rating
Select an answer to continue
Tags
#risk-retention
#securitization
#dodd-frank
#moral-hazard
#first-loss
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