Featured Product

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    November 26, 2020

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks. In contrast to the proposal on the capital treatment of non-performing loan securitizations, which was published in June 2020, the final rule permits banks to apply the external ratings-based approach to non-performing loan securitization exposures, without the 100% risk-weight floor. In addition, the final rule includes discounts on tranche sales in the definition of discount incurred by the originating bank that factors in the capital requirements. With this, BCBS is amending the securitization standard to address a gap in the existing regulatory framework by setting out prudent and risk-sensitive capital requirements for non-performing loan securitizations. The technical amendment is to be implemented by, no later than, January 01, 2023.

    BCBS had started developing the technical amendment before the onset of the COVID-19 pandemic. However, the recent observations in which the securitized portfolio consists mostly of non-performing loans have shed light on the potential risk-weight miscalibration. To correct this situation, BCBS has agreed to add the following elements to the securitization:

    • An explicit definition of securitizations of non-performing loans
    • Removal of the option to use foundation internal risk-based parameters as inputs for the internal ratings-based approach (SEC-IRBA) for all securitizations of NPLs
    • Introduction of a 100% risk-weight floor for exposures to securitizations of non-performing loans that are risk-weighted under the SEC-IRBA or the standardized approach (SEC-SA).
    • Risk-weight of 100% under SEC-IRBA or SEC-SA, for the senior tranches of securitizations of non-performing loans where the non-refundable purchase price discount is equal to, or greater than, 50% of the securitized portfolio

    All other provisions of the current securitization standard, including the use of external ratings-based approach (SEC-ERBA) and the possibility of capping the capital requirement for exposures from the same transaction, will also apply to the securitizations of non-performing loans. This technical amendment does not change any rule related to the securitization of performing loans.

     

    Related Links

    Effective Date: January 01, 2023 

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

    Featured Experts
    Related Articles
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    News

    HKMA to Increase Focus on Suptech and Regtech Cloud Adoption

    HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.

    June 17, 2021 WebPage Regulatory News
    News

    EC Consults on Improving Transparency in Secondary Markets for NPLs

    EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).

    June 16, 2021 WebPage Regulatory News
    News

    BIS and Nordic Central Banks Launch Innovation Hub in Stockholm

    BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Tech Sprint Aims to Explore Technologies to Reach Unbanked

    FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.

    June 16, 2021 WebPage Regulatory News
    News

    EC Releases Sustainable Finance Taxonomy Compass

    EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    EIOPA to Consider Liquidity Risk in Stress Test for 2021

    EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.

    June 15, 2021 WebPage Regulatory News
    News

    ESRB Paper Discusses Measurement of Impact of Bank Failure via Lending

    The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.

    June 15, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7116