The Swedish Financial Supervisory Authority (FI) has updated the lists of deactivated EBA validation rules for periodic reporting (via Fidac) for banks and investment firms. FI also updated the method for assessing flowback risks associated with securitization for individual banks. FI has published a memorandum assessing that a bank, in addition to its contractual obligations, in most cases will offer financing to borrowers whose credits can no longer be financed through a securitization.
FI notes that support measures for borrowers that give rise to flowback risks are not covered by the existing capital requirements and, thus, it takes the position that risks associated with securitization for individual banks are also not fully covered by existing capital requirements. The updated method to assess flowback risks associated with securitization will be applied to banks that perform traditional and synthetic securitizations, where the terms for the transfer of significant credit risk to a third-party are viewed to be met. Securitizations that are judged to entail low flowback risks will be exempt from the method. The method will be applied to banks where the flowback risk in an overall capital assessment is judged to be material. FI makes the assessment that this will initially apply to banks in Supervision Categories 1 and 2. In exceptional cases, it may also apply to banks in Supervision Categories 3 and 4 after a separate assessment. FI intends to decide on an additional own funds requirement for flowback risks associated with securitization if at least one of the two following conditions are met:
- Bank's total capital ratio decreases by at least 50 basis points during a future twelve-month period as a result of the flowback
- Exposure amount for the bank's securitized credits exceeds 15% of the bank's total exposures amount in relevant exposures classes
This memorandum addressing flowback risk replaces the 2017 memorandum on Pillar 2 capital assessment method for systemic risk associated with securitizations. In the 2017 memorandum, FI described how securitizations, given certain conditions, could introduce systemic risks associated with securitizations that are not covered by Pillar 1.
Related Links (in English and Swedish)
- News Release on Validation Rules
- List of Deactivated Validation Rules for Banks (XLSX)
- List of Deactivated Validation Rules for Investment Firms (XLSX)
- Notification on Assessment of Flowback Risk
- Memorandum (PDF)
Keywords: Europe, Sweden, Banking, Securities, Validation Rules, Fidac, Securitization, Flowback Risk, Regulatory Capital, Pillar 2, Investment Firms, Reporting, Credit Risk, FI
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