Tom Deutsch, the executive director of the American Securitization Forum, said in a Friday letter to the Commodity Futures Trading Commission that U.S. regulators should exempt securitization vehicles from Dodd-Frank requirements.
“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 said, according to Bloomberg.
Deutsch said that CFTC rules could force securitization vehicles to register as commodity pools because they often utilize interest rate swaps to hedge risk, which could ultimately restrict bank investments under the Volcker Rule’s limits.
The American Securitization Forum, which represents investors, trustees and banks, is seeking an exemption before the rules are scheduled to take effect. Under the 2010 Dodd-Frank Act, the CFTC and Securities and Exchange Commission are required to issue regulations that reduce risk and enhance transparency in the swaps market.
Regulators are working to finalize the Volcker Rule, a measure that prohibits banks from engaging in proprietary trades — or risky investment with client funds.
“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, Bloomberg reports.