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21 March 2014

EBF response to the BCBS second consultation on revisions to the Basel Securitisation Framework

The response includes: an executive summary with main observations; considerations and proposals regarding a series of relevant issues affecting the impact of the revised framework on the European securitisation market; responses to the three questions of the BCBS consultative paper.

The EBF welcomes the shift towards simplification of the hierarchy seen in this second version of the revised framework for securitisation. The introduction of the internal ratings based approach which is simpler than the previously proposed MSFA is a move in the right direction. Nevertheless, additional work needs to be done to strengthen the risk sensitivity of the framework and to smooth the steepness of the risk weights. The EBF considers that the rules could benefit from further consistency of treatment across the hierarchy of approaches.

It is also worth noting that relevant measures have already been taken since the wake of the crisis making the securitisation market significantly safer from a prudential point of view. In particular, a series of policy measures to address the shortcomings that became apparent in the pre-crisis securitisation framework have already been put into force in the EU. The EBF suggests that the Committee takes full account of all regulatory changes in the assessment of the revised securitisation framework.

EBF draws the attention of the Committee to the fact that the EU is making every effort to maintain a securitisation market that is instrumental in the funding of the European economy. In this vein, the EBF would like that the Committee carefully considered the following aspects:

  • For responding to the aim of increasing the risk sensitivity of the regulatory framework, the calibration of the proposed approaches needs to be reviewed. The EBF supports the Conservative Monotone Approach (CMA) as a more conservative and simpler development of the Arbitrage Free Approach (AFA) proposed by the banking industry in 2013. In contrast with the revised MSFA (which is a formulae) the CMA is a transparent risk model. The SSFA (for both IRBA and SA approaches) could then be calibrated by the CMA.
  • The ERBA should also be aligned to the newly recalibrated IRBA and SA, with a view of increasing the consistency of treatment across the hierarchy of approaches.
  • High-quality securitisation assets need to be correctly addressed by the regulatory framework (i.e. according to their risk profile thus avoiding unduly conservative treatment). For this purpose, high quality labels could be recognised in the assessment of the capital requirement of qualifying securitisations which should be commensurate to the lower risk involved or in setting up a prudential definition for the high quality securitisation. A separate calibration should be considered for plain vanilla high quality securitisations linked to real economy financing, with lower floors.
  • The BCBS should define a set of minimum requirements for the Kirb calculation that would allow sufficient flexibility in the calculation implementation, depending on the available information. Specifically a simplified top-down-calculation of Kirb based on historical loss rates provided by the originator should be explicitly made possible.
  • The use of the internal rating based approach is mostly welcome in the case of mixed pools, however the extremely high risk weight assigned to residual exposures in the underlying pool could mar the objective to revitalise the use of this vehicle that is central to financing the economy. It should be revisited.
  • In the case of the external rating based approach, the BCBS should consider the potential duplication of risk factors like the tranche maturity which are included in the assessment of the ECAIs.
  • In the IAA provisions the requirement that a bank must have IRB approval for the predominant share of the underlying assets should be removed.
  • If counterparties fulfil certain eligibility criteria, there should be no additional capital add-on for the counterparty risk of embedded swaps or cash deposits. Furthermore, the definition of maturity should be revisited as it remains, in the view of the EBF, overly conservative. In practice, the vast majority of securitisations do not have contractually fixed payments, therefore the legal maturity which is vaguely connected to the actual maturity would have to be used leading to a significant overestimation of risk weights for many transactions.

Full response


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