U.S. regulators yesterday issued a rule requiring banks that sell loans to investors to keep part of the risk on their own books, a measure aimed at preventing the sloppy loans that sparked the 2007-09 credit crisis, Reuters reported yesterday. The rule was mandated by the 2010 Dodd-Frank Wall Street reform law. After years of debate over its parameters, the 553-page measure was adopted by three of the six agencies that need to sign off on it. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency also adopted the rule. It requires banks to keep at least 5 percent of the risk on their books when they securitize loans. This "skin in the game" is aimed at aligning the bank's interest with the investors that buy the loans. Before the crisis, banks pumped up lending volumes with little concern about risks since they planned to offload the loans. Investors who purchased loans gauged risk relying on credit ratings by agencies that had received fees from the banks.
