Bloomberg has reported that JPMorgan’s flagship structured RMBS deal last year with Fannie Mae was dealt a hard blow when the OCC denied the bank favorable capital treatment on its retained risk.  This sets back not only JPM’s “Madison Avenue Securities Trust,” but also future GSE structured risk shares with large U.S. banks.  Validating the longstanding warnings we have provided about the capital costs to big banks in first-loss positions, the OCC’s action is also a reminder of the capital obstacles to broader GSE reform relying on private first-loss takers.

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