Featured Product

    BCBS Proposes to Amend Capital Treatment of Securitizations of NPLs

    June 23, 2020

    BCBS is proposing on a technical amendment to the securitization standard to address a gap in the existing regulatory framework. The proposal sets out a prudent treatment for securitizations of non-performing loans (NPLs), with a risk-weight of 100% for certain senior tranches of non-performing loan securitizations. The risk-weight applicable to the other positions are determined by the existing hierarchy of approaches, in conjunction with a 100% risk-weight floor and a ban on the use of certain inputs for capital requirements. Comment period for this consultation ends on August 23, 2020 while the proposed amendment to the securitization standard is expected to come into effect by no later than January 01, 2023.

    BCBS started developing this proposal before the onset of the COVID-19 pandemic. The proposed technical amendment to the securitization standard implements the following modifications, without changing any of the existing rules for securitizations of performing assets:

    • Establishment of a standardized definition of NPL securitizations as securitization transactions where there is a percentage of at least 90% of defaulted assets in the portfolio at inception and at a later time where assets are added to or removed from the underlying pool due to replenishment, restructuring or any other relevant reason. Re-securitizations have been expressly excluded from this definition of NPL securitizations. The definition above is a minimum standard, and national supervisors should be able to implement stricter criteria.
    • A ban on the use of foundation internal ratings-based (IRB) parameters as inputs for the SEC-IRBA for all NPL securitizations.
    • Introduction of a risk-weight floor of 100% for all NPL securitization exposures.
    • Introduction of a fixed 100% risk-weight applicable to the most senior tranche of qualifying NPL securitizations, where “qualifying” refers to traditional securitizations in which the nonrefundable purchase price discount (NRPPD), which is essentially the discount applied to the nominal or outstanding value of the NPL portfolio when these defaulted assets are securitized, is equal to or larger than 50% of the outstanding amount of the NPLs.

    In conjunction with the foundation IRB parameters ban and the 100% risk-weight floor, the current provisions of the securitization framework continue to apply to all other exposures to NPL securitizations (that is, senior tranches of non-qualifying NPL securitizations and mezzanine and junior tranches of all NPL securitizations). The banks that are allowed, under the current rules, to apply a maximum capital requirement for their securitization exposures in the same transaction can continue to apply the same maximum capital requirement as applicable under current rules. This applies to originator and sponsor banks as well as investor banks using the SEC-IRBA.

     

    Related Links

    Comment Due Date: August 23, 2020

    Effective Date: January 01, 2023 (proposed)

    Keywords: International, Banking, Credit Risk, Securitization Framework, Regulatory Capital, Basel, SEC-IRBA, BCBS

    Featured Experts
    Related Articles
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    News

    US Agency Publications Address Basel, Reporting, and CECL Developments

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances

    May 09, 2022 WebPage Regulatory News
    News

    SEC Extends Comment Period on Climate Risk Disclosures

    The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.

    May 09, 2022 WebPage Regulatory News
    News

    APRA Reduces Committed Liquidity Facility, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.

    May 09, 2022 WebPage Regulatory News
    News

    CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks

    The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.

    May 06, 2022 WebPage Regulatory News
    News

    PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down

    The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.

    May 06, 2022 WebPage Regulatory News
    News

    EBA Updates Standards for 2023 Benchmarking of Internal Approaches

    The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.

    May 06, 2022 WebPage Regulatory News
    News

    EIOPA Responds to Stakeholder Views on Blockchain in Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.

    May 06, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8179