Three U.S. banks are planning to sell the first commercial mortgage bonds to comply with new rules designed to make securitization markets safer for investors, according to a person familiar with the matter.
Wells Fargo & Co., Bank of America Corp. and Morgan Stanley expect to sell as much as $1 billion of the debt in a transaction by the end of July, said the person, who asked not to be identified because the details are private.
The banks will keep 5 percent of each tranche of securities issued, to follow a new rule known as risk retention. That rule, outlined in broad terms in the 2010 Dodd-Frank financial reform law, requires banks that are packaging loans into bonds to keep a portion of the securities they create to prevent them from offloading deceptively bad assets to investors. The new requirements take effect in December.
Keeping 5 percent of each tranche is one of three ways to meet the rule that banks can choose. Representatives for the three banks declined to comment.