April 08, 2019

EBA published the final draft regulatory technical standards (RTS) setting out conditions to allow institutions to calculate capital requirements of the securitized exposures (KIRB) in accordance with the purchased receivables approach laid down in the amended Capital Requirements Regulation (CRR). The draft RTS aim to strike the right balance between the need to acknowledge the circumstances under which institutions calculate capital requirements in the context of a securitization transaction and the need to maintain appropriately safe and prudent requirements on the internal modeling of capital requirements. The RTS are part of the 28 mandates assigned to EBA within its important role in the implementation of the new securitization framework.

To expand the use of the Securitization Internal Ratings-Based Approach (SEC-IRBA), which sits now at the top of the hierarchy of approaches for calculating capital requirements of securitization positions, the CRR amendment accompanying the Securitization Regulation introduces the possibility of using the provisions that normally apply to purchased receivables under the general internal ratings-based (IRB) credit risk framework. This way, eligible institutions may calculate the KIRB and the corresponding risk parameters, (probability of default: PD and loss given default: LGD), under the provisions of the purchased receivables and then use them as input in the SEC-IRBA, along with other information on the securitization position. The draft RTS specify the conditions under which institutions may use the provisions on purchased receivables to make them fully workable in the context of securitization transactions. For this purpose, retail securitized exposures shall be treated as purchased retail receivables and non-retail securitized exposures as purchased corporate receivables.

The draft RTS covers are the following key areas:

  • General approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework
  • Eligibility conditions to compute KIRB under the RTS
  • IRB permissions and prior experience
  • Eligibility to use the retail risk quantification standards
  • Use of proxy data

 

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Keywords: Europe, EU, Banking, Securitization Framework, KIRB, CRR, SEC-IRBA, IRB, Regulatory Capital, Credit Risk, Basel, EBA

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