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CRE Finance Council Urges Careful Implementation of Dodd-Frank Securitization Exemption
Nov 08, 2010

The CRE Finance Council has submitted a comment letter to U.S. Secretary of the Treasury Timothy Geithner, chair of the Financial Stability Oversight Council (FSOC), in response to an FSOC study on rulemaking to prohibit proprietary trading by certain financial institutions, known as the “Volcker Rule.” The Volcker Rule is intended to restrict proprietary trading by banks and their affiliates and to prohibit them from owning or investing in hedge funds and private equity funds. During consideration of the reform bill, market participants raised concerns about the overly broad restrictions on banks, and the CRE Finance Council subsequently worked with policymakers to include language that would allow ‘market-making’ activities critical to securitization. The CRE Finance Council letter emphasizes that regulators should strictly adhere to Dodd-Frank, which directs that the Volcker Rule should not be construed to limit or restrict lawful securitizations. “While Dodd-Frank explicitly exempts securitization, CRE Finance Council urges regulators to carefully consider rules to ensure that a broad application does not negatively affect the CMBS market, which is critical to a commercial real estate recovery,” said John D’Amico, chief executive officer of CREFC. “We are starting to see a timely revival of the CMBS market, but policymakers must take extra care with rules that could unintentionally impact its fragile state.” The CRE Finance Council asserted in its letter that securitization is also, as a business, conceptually different from the types of activities the Volcker Rule seeks to address. Therefore, the Council said any future recommendations with respect to regulatory implementation should not adversely impact the ability of covered entities to originate and securitize loans. “Congress exempted securitization from the Volcker rule both in recognition of securitization’s importance to the economy and in recognition that securitization is conceptually different from the types of conflicts of interest and high-risk activities the Volcker Rule seeks to address,” said D’Amico in the comment letter. “Equally important, Congress understood that certain activities are less likely to raise these types of concerns, such as risk-mitigating hedging activities, and market-making activities.” Click here to view the full comment letter. For more information, visit
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