US regulators including the Federal Deposit Insurance Deposit Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have mandated that collateralized loan obligation (CLO) managers need to hold a stake of each new deal.
According to final rules, CLO managers will have to retain a minimum of 5% of the debt they package or sell.
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The loan industry has long back demanded inclusion of CLOs in risk retention rules in order to put a check on lending practices that resulted in the mortgage market meltdown.
Regulators stated: "Requiring open market CLO managers or lead arrangers to retain economic exposure in the securitized assets will help ensure the quality of assets purchased by CLOs, promote discipline in the underwriting standards for such loans, and reduce the risk that such loans pose to financial stability."
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