Which of the following is true of the Dodd-Frank legislation?
A) Federal Deposit Insurance Corporation-insured institutions are required to keep their interests in hedge funds and private equity funds.
B) Investment banks have to set aside reserves to cover all forms of expenditure.
C) Originators of mortgage securities must hold 5 percent of the credit risk, thus retaining an interest in the performance of the securities.
D) Banks will be allowed to trade in a proprietary manner but cannot continue to buy or sell from their own accounts to hedge against other investments.

Question

Quizplus · Accepted Answer

The Dodd-Frank legislation requires originators of mortgage securities to hold 5 percent of the credit risk, thus retaining an interest in the performance of the securities. This is aimed at incentivizing originators to ensure that the loans they put into the securities packages are of good quality. A, B, and D are incorrect as they do not accurately describe part of the Dodd-Frank legislation.

Which of the Following Is True of the Dodd-Frank Legislation