Featured Product

    ECB Publishes Opinion on Proposals to Amend Securitization Framework

    September 24, 2020

    ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic. In its opinion, ECB welcomes the proposed regulations, which contain targeted amendments to EU securitization framework with the aim of facilitating the use of securitization in EU's recovery. However, ECB makes certain recommendations to enhance the proposed regulations. For the amendments that ECB recommends, specific drafting proposals have been set out in a separate technical working document accompanied by an explanatory text to this effect.

    This opinion has been published in response to the August 2020 request of EU Council to ECB for an opinion on two proposals (referred to as proposed regulations). The first proposal is for a regulation amending Regulation 2017/2402 on a general framework for securitization and creating a specific framework for simple, transparent, and standardized (STS) securitization to help the recovery from the COVID-19 pandemic (the proposed securitization regulation. The second proposal is for a regulation amending the Capital Requirements Regulation (CRR or Regulation 575/2013) regarding adjustments to the securitization framework to support the economic recovery in response to the COVID-19 pandemic (proposed regulation amending the CRR). This second proposed measure involves the removal of regulatory obstacles to the securitization of non-performing exposures (NPEs), to maintain the lending capacity of credit institutions, given that an increase in NPEs caused by COVID-19 can be expected. It is based on the draft standards proposed by BCBS and published for consultation in June 2020.  

    The following are the key highlights of the opinion and recommendations of ECB with respect to the two proposed regulations:

    • ECB welcomes the proposal to standardize the synthetic securitization market through the introduction of STS criteria, which are likely to have a positive steering effect. However, as EBA recognizes in one of its reports, there are limitations in the data and transactions used in this analysis. Nevertheless, ECB recommends that a thorough monitoring of the STS synthetic securitization market is put in place, also highlighting that the preferential risk-weight treatment could be an incentive for credit institutions to increase their reliance on synthetic securitization for capital management.
    • ECB supports the EC proposal to adjust the prudential treatment of NPE securitizations, in line with the recent consultation by BCBS, and recommends that the draft BCBS standards are reflected faithfully, unless there is a strong reason to deviate. In that respect, ECB recommends that the EC proposal should be adjusted, if necessary, to reflect the final BCBS standards. The draft BCBS standards strike a good compromise between risk-sensitivity and simplicity by defining a fixed 100% risk-weight for senior tranches of qualifying NPE securitizations. ECB also proposes to amend Article 249(3) of the CRR to be fully aligned with the BCBS standards, meaning that no minimum rating requirements are imposed on most of the unfunded credit protection providers, while requirements are imposed on unfunded credit protection provided by unregulated private entities in line with the BCBS standards.
    • The definition of NPE securitizations in the proposed securitization regulation deviates from the definition proposed in the draft BCBS standards. However, ECB supports the approach proposed by EC. This is because credit institutions established in EU apply the NPE definition as set out in Article 47a(3) of the CRR for regulatory reporting and risk management purposes; the definition in Article 47a(3) of the CRR is more closely aligned with associated economic risks and bank practice than the parameter W. In addition, the definition of NPEs in Article 47a(3) of the CRR captures unlikely-to-pay exposures, in contrast to the definition proposed in the draft BCBS standards; some EU credit institutions have significant stocks of unlikely-to-pay exposures and would benefit from the proposals.
    • ECB recommends an amendment to the proposed definition of non-refundable purchase price discount (NRPPD). ECB further recommends expressly excluding refundable purchase price discounts, which can undermine the risk transfer as the originator is still exposed to the performance of the NPEs.
    • ECB recommends clarifying, for the avoidance of doubt, that the 100% risk-weight floor for NPE securitizations overrides the so-called "look-through approach" risk-weight cap for senior securitization positions pursuant to Article 267 of the CRR (if the cap results in a risk-weight below 100%), as expressly stated in the draft BCBS standards (see CRE 45.5).

     

    Related Link: Opinion (PDF)

     

    Keywords: Europe, EU, Banking, Securities, Securitization Framework, COVID-19, CRR, NPE, Credit Risk, STS Securitization, Regulatory Capital, Basel, BCBS, ECB

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    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.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    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).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    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.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    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)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    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.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    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.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    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)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    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.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514