EBA published an opinion on the regulatory treatment of securitizations of non-performing exposures (NPEs). Securitizations can play an instrumental role in reducing NPE stocks in the balance sheets of credit institutions but such a role may be hindered by certain provisions in the EU securitization framework. The opinion recommends various amendments to the Capital Requirements Regulation (CRR) and to the Securitization Regulation to remove the identified constraints. The opinion is addressed to EC and contributes to the objectives of the action plan of the European Council to tackle non-performing loans in Europe.
The opinion explains that the regulatory framework imposes certain constraints on credit institutions using securitizations to dispose off NPE holdings. The constraints include:
- Very high capital requirements on investor credit institutions under CRR. The pre-eminent securitization capital methods (the SEC-IRBA and the SEC-SA) and the look-through approach lead to disproportionately high capital charges on NPE securitization positions when compared to the relevant benchmarks and, as a result, tend to overstate the actual risk embedded in the portfolio.
- Compliance challenges for certain risk retention and due diligence requirements under the Securitization Regulation.
The opinion, therefore, recommends that EC should consider a number of targeted amendments to CRR and the Securitization Regulation to remove these constraints while maintaining the integrity of the prudential framework. EBA also recommends EC to take action to clarify where the caps for securitizations laid down in Articles 267 and 268 of the CRR are applied to NPE securitizations. Furthermore, the potential amendments to CRR should be, to the extent possible, consistent with the comparable international standards. NPE securitizations are transactions backed by pools comprised exclusively, or almost exclusively, of NPEs at the time of inception. Though structurally similar to other securitizations, the underlying assets have distinctive features that set NPE securitizations apart from those from an economic substance perspective, namely due to the large discount on their nominal value and their specific underlying risks.
Keywords: Europe, EU, Banking, Securitization, Credit Risk, NPL, Opinion, CRR, Securitization Regulation, Non-Performing Exposures, EC, EBA
Previous ArticleUS Regulatory Agencies Join Global Financial Innovation Network
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.