Risk retention rule

The Risk Retention Rule is a regulation that requires certain financial institutions, particularly issuers of asset-backed securities, to retain a portion of the credit risk associated with those securities. This means they must keep a percentage of the assets on their balance sheets instead of selling them all to investors. The goal is to ensure that these institutions have a vested interest in the performance of the securities, encouraging more responsible lending and reducing the likelihood of excessive risk-taking. Essentially, it helps align the interests of lenders with those of investors.