12CLOs and regulation

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Regulation has constantly re-shaped the CLO market since the crash of 2008.

Some of the most important changes have been to the way banks are required to treat their CLO investments for regulatory capital purposes. Banks have always been important investors in CLOs and these rules therefore have a big effect on demand for different CLO tranches.

Regulators have also imposed regulations which direct affect the way that CLOs are structured and sold. A key example is risk retention, the requirement for the entity responsible for a securitisation to have its interests aligned with investors. The rules on risk retention differ significantly between the US and Europe.end



Milestones in CLO regulation

Basel II introduced

Capital Requirements Directive implements Basel II in Europe

Basel III introduced

Risk retention comes into effect in Europe

Volcker rule comes into effect in US

New securitisation treatment introduced for some US banks, eliminating use of ratings

Capital Requirements Regulation implements Basel III in Europe

US risk retention due to come into effect

Basel III.5: implementation expected

Turn to the print version of the CLO guide to find out:

Which version of the Basel bank capital rules apply in which region.

How banks are required to treat their investment in different tranches of CLOs.

How US rules banning the use of credit ratings in regulation have changed the regulatory treatment of US bank investments in CLOs.

How Solvency II will change the way European insurance companies treat their investments in CLOs.

How CLOs can comply with risk retention in Europe and in the US.

How the Volcker rule introduced in the US in December 2013 has resulted in many CLOs adopted new structural features.