FDIC to require banks to share the risk when issuing asset-backed securities
WASHINGTON (AP) — Federal regulators are insisting that banks share some risk when issuing the type of asset-backed securities that nearly toppled the financial system two years ago.
The Federal Deposit Insurance Corp. is requiring banks hold at least 5 percent of the securities on their books, as part of new rules the regulator adopted Monday that were required under the new financial overhaul law. Banks would be required to purchase their share of the securities beginning Jan. 1.
The idea is that banks with such exposure to risk would be more careful about properly screening borrowers.
Financial industry executives have opposed the requirements. Banks don’t have enough room on their balance sheets to retain 5 percent of all the loans they make, some executives have maintained.