Basel Requirements under the Securitisation Framework

With the aim of radically overhauling the capital adequacy rules for securitisations, in December 2012, the Basel Committee initially published a first consultative paper.

The key changes compared with the existing approaches are:

  • The establishment of a single hierarchy of approaches
  • No options for supervisory authorities, or institutions with respect to the approach to be used within a hierarchical level
  • Reduction in the complexity of the approaches
  • Harmonisation of the different approaches relating to the resulting capital requirements

A second consultative paper entitled "Revisions to the securitisation framework“ was published on 19 December 2013.

The objectives set out in this paper were the same as those that were announced and listed in the first consultative paper. The intention was to address and eliminate the weaknesses that emerged in the course of the financial market crisis:

  • heavy reliance on the use of external ratings for capital requirements
  • risk weights that are too high / too low for highly- / low-rated securitisation positions
  • the existing regulatory cliff effects in the case of securitisations where there is a deterioration in credit quality of the underlying pool of receivables

Essentially, the proposed changes would lead to a significant reduction in the complexity of the framework with respect to both the individual approaches themselves as well as with regard to the hierarchical structure. By contrast, it would appear that there will be a significant increase in the capital requirement, which is due to a higher risk-weight floor at the lower end of the risk weights, too.

The precise effects will be seen in the course of the accompanying Quantitative Impact Study (QIS), which should carried out and completed in the first half year of 2014.