Abstract
We study the impact of the risk retention rule - requiring 5% of underlying credit risk for commercial mortgage backed securities - on commercial real estate markets. Since the primary objective of this rule is for the deal sponsors to have skin in the game, we expect that underwriting standards should tighten following the implementation of the rule. Consistent with this notion, we find the reform led to a decrease in price premium and probability of rating shopping by the sponsors, as well as longer time-to-securitization and lower default probability. We also show that the Dodd-Frank risk retention rule can impact banks’ credit supply by curtailing credit growth. As a result, we provide novel evidence on the effect of the risk retention rule on underwriters most exposed to the regulation.
Original language | English (US) |
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Pages (from-to) | 684-714 |
Number of pages | 31 |
Journal | Journal of Real Estate Finance and Economics |
Volume | 68 |
Issue number | 4 |
DOIs | |
State | Published - May 2024 |
All Science Journal Classification (ASJC) codes
- Accounting
- Finance
- Economics and Econometrics
- Urban Studies