Japanese banks inching away from US CLO market

New rules prevent firms investing in CLOs where originator is not obliged to retain risk

US-Japan flags

Increased scrutiny by the Japanese regulator on securitisation investments is forcing banks to reduce their allocation to the US market for collateralised loan obligations, potentially contributing to wider spreads on senior AAA tranches.

A new capital adequacy law, which was introduced by the Japan Financial Services Agency (FSA) at the end of March, has imposed criteria that Japanese banks and other credit institutions (plus some securities companies) must meet on their holdings of CLOs.

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