U.S. regulators should exempt securitization vehicles from Dodd-Frank Act rules slated to take effect this year to avoid hampering the market for asset-backed securities, according to an industry lobby group.
Commodity Futures Trading Commission rules may lead securitization vehicles to register as so-called commodity pools because they often use interest-rate swaps to hedge risks, Tom Deutsch, executive director of the American Securitization Forum said today in a letter to the agency. That shift may restrict bank investments because of limits under Dodd-Frank’s Volcker rule, he said.
“Bank sponsors of securitizations may be forced to terminate their relationship with and/or investment in securitization vehicles that allow them to provide hundreds of billions of dollars of consumer financing, with serious adverse effects for the economy as a whole,” Deutsch wrote.
The securitization group, which represents Bank of America Corp. and Bank of New York Mellon Corp. among hundreds of investors, issuers and trustees, wants an exclusion this year before the rules take effect. The CFTC and the Securities and Exchange Commission are required by Dodd-Frank to complete regulations reducing risk and increasing transparency in the swaps market after unregulated trades helped fuel the 2008 credit crisis.
The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, was included in the regulatory overhaul to restrict banks’ proprietary trading and investment in private equity and hedge funds. The CFTC and other regulators are working to complete the measure after missing the July 21 deadline for implementation.
“Two years later we’re just figuring out that the Volcker rule ABS exemption may be trumped by a backdoor definition of ABS as a commodity pool,” Deutsch said today in a telephone interview.
Steve Adamske, the CFTC’s spokesman, declined to comment on the group’s letter.