EBA Publishes Report on STS Framework for Synthetic Securitization
EBA published a report that contains proposals for developing a simple, transparent, and standardized (STS) framework for synthetic securitization under the Securitization Regulation (2017/2402). The proposal includes a list of criteria to be considered when labeling the synthetic securitization as STS and provides the pros and cons of a potential differentiated capital treatment for this type of securitization. The proposal is limited to balance-sheet securitization.
The report contains an extensive analysis of the market developments and trends related to synthetic securitization in EU; this includes data on the historical default and loss performance of the synthetic transactions, both before and after the financial crisis (up until the end of 2018). The report examines rationale behind the STS synthetic product and assesses the positive and negative implications of its possible introduction. Based on the analysis conducted, EBA recommends the following:
- One recommendation is to establish a cross-sectoral framework for STS synthetic securitization that is limited to balance-sheet securitization.
- To be eligible for STS status, a synthetic securitization must comply with the proposed criteria on simplicity, standardization, and transparency.
- EC should consider the pros and cons related to a potentially differentiated capital treatment for STS balance-sheet synthetic securitization; any potential future proposal for STS synthetic securitization should be accompanied by a mandate to EBA to monitor the functioning of the STS synthetic market.
The report sets out a list of STS criteria for synthetic securitization. Among the proposed STS criteria are requirements on simplicity, standardization, and transparency—similar to those applied to traditional securitization. In addition, the report includes other relevant criteria for synthetic transactions, such as those for mitigating counterparty credit risk or for addressing various structural features of synthetic securitization.
Related Links
Keywords: Europe, EU, Banking, Securities, Synthetic Securitization, Counterparty Credit Risk, Securitization Regulation, STS Securitization, EBA
Previous Article
EBA Guidelines on Credit Risk Mitigation Under Advanced IRB ApproachRelated Articles
APRA Updates Validation and Derivation Rules in September 2020
APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
EC Proposes Frameworks for Crypto-Assets and Operational Resilience
EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.
ECB Publishes Opinion on Proposals to Amend Securitization Framework
ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.
FCA Consults on Regulation of International Firms in UK
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS Amends Notice on Capital Adequacy Requirements of Banks
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA to Begin to Move Firms to New Data Collection Platform RegData
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
ISDA Expects IBOR Fallbacks to be Effective by End of January 2021
ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.
APRA Reviews Repayment Deferral Plans, Identifies Best Practices
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs Assess Risks to Financial Sector After COVID-19 Outbreak
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE Confirms Withdrawal of COVID Corporate Financing Facility
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.
