In many cases, the originating institution retains significant credit exposure through the credit enhancements that it provides. These enhancements constitute contractual obligations to protect investors who have purchased the securities generated by the transaction from incurring credit losses.
These contractual recourse exposures, as you well know, are addressed in the agencies’ risk-based capital standards, including an interagency rule implemented in January of this year that establishes a concentration limit and imposes a dollar-for-dollar capital charge on certain residual interests.