15 March 2018

Homogeneity of underlying exposures in securitisation - EBF reaction to the EBA consultation

EBA itself recognises in its paper that the aim of the new proposal on homogeneity is not to alter current market practices.

A definition of homogeneity based on asset classification already exists for ABS to be eligible as collaterals to the ECB (ECB Guideline EU 2015/510). Securitisations that comply with this definition are currently considered as high quality, homogeneous and simple operations of which the underlying exposures can be easily assessed by the investors.

The EBF would recommend ensuring consistency between the EBA proposal and the ECB Guidelines, therefore removing the requirement to consider a list of risk factors for each asset category in order to avoid the creation of a complex global framework where some securitisations would be considered as homogeneous for the ECB but would not be granted with the STS stamp.

In case that the risk factors are finally maintained:

• It is worth noting that a strict interpretation of the EBA proposal would not recognise most of the well-established securitisations as homogenous. If all the risk factors defined as “to be considered” by EBA for any asset category end up being binding and must be applied to determine whether the underlying assets of a securitisation can be considered as homogeneous, most of the existing securitisations would be disqualified even if they are currently deemed as high-quality according to the ECB definition.
• The EBF recommends further clarifying that all the risk factors listed as to be considered should not automatically be applied.
• It is also important to specify that the supervisor should focus his ex-post assessment of banks’ application of the homogeneity criteria on the reasons why banks consider a pool of assets as homogeneous. Banks should not be automatically required to justify why they did not consider some of the risk factors which would make all these risk factors binding.
• The EBA RTS should take into consideration that some securitisations are backed by a pool of securitised exposures constituted by homogenous sub-portfolios that belong to the same asset category but that would not fulfil the homogeneous requirement if the entire pool is considered. This kind of securitisations should not be disqualified.

Regarding the proposed classification by asset categories, it is worth noting that it is a common practice for banks to issue securitisations that are backed by a mixed pool of assets including for example both loans to natural persons and loans to SMEs. The EBF would recommend the introduction of a materiality threshold similar to the one proposed for the consideration of risk factors, that would allow a certain degree of diversification in terms of asset category.

Full response

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