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
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).
HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26
HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.
