Federal Reserve to adopt bank risk retention rule next week

The U.S. Federal Reserve will meet next week to adopt a rule requiring that banks keep some risk on their books when they sell loans, addressing a crucial issue that helped set off the 2007-09 credit crisis.

The Fed said it will meet on Oct. 22 to adopt the final version of the credit risk retention rule, a requirement of the 2010 Dodd-Frank law to reform Wall Street.

The rule, initially proposed in 2011, was reintroduced last year following two years of lobbying from the banking industry and affordable housing advocates.

Regulators initially wanted only safe loans, with a hefty down payment, to be exempted from the risk retention requirement, but dropped the demand after banks and consumer groups argued it would stifle the housing market's recovery.

Under Dodd-Frank, banks must keep 5 percent of mortgages and other loans on their books - except for the most basic ones - when they sell them to investors through securitization, a central driver of the credit crisis. The new rule gives banks an incentive to be prudent when lending, regulators say.

The rule must also be adopted by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Department of Housing and Urban Development, and the Federal Housing Finance Agency.

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U.S. Federal Reserve, banks

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