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    EBA Consults on Determining Exposure Value of SES in Securitizations

    August 09, 2022

    The European Banking Authority (EBA) is seeking comments, until October 14, 2022, on the draft regulatory technical standards on the determination by originator institutions of the exposure value of synthetic excess spread (SES) in securitizations.

    The draft regulatory technical standards have been developed in accordance with Article 248(4) of the Capital Requirements Regulation or CRR (Regulation 575/2013), as amended by the Regulation (No 2021/558) of March 31, 2021, as part of the Capital Markets Recovery Package (CMRP). The Recovery Package amended the Securitization Regulation (No 2017/2402) and the CRR in several aspects, including a preferential treatment for senior tranches of simple, transparent and standardized (STS) on-balance-sheet securitizations and introduced a provision on how to determine the exposure value of synthetic excess spread in synthetic securitizations. The draft regulatory technical standards specify the calculation of the exposure value of the elements that should be included in the exposure value of synthetic excess spread, taking into account the relevant losses expected to be covered by synthetic excess spread. These elements include:

    • any income from the securitized exposures recognized by the originator institution in its income statement under the applicable accounting framework that the originator institution has contractually designated to the transaction as synthetic excess spread that is still available to absorb losses.
    • any synthetic excess spread contractually designated by the originator institution in any previous periods that is still available to absorb losses, or
    • any synthetic excess spread contractually designated by the originator institution for the current period that is still available to absorb losses, and
    • any synthetic excess spread contractually designated by the originator institution for future periods.

    The consultation paper also includes a question on an alternative approach to determine the exposure value of synthetic excess spread, which builds on the current supervisory practices implemented by a competent authority before the CMRP amended the CRR but includes some adjustments to that current supervisory practice. Following the submission, these draft regulatory technical standards will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

     

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    Keywords: Europe, EU, Banking, Securitization, Regulatory Technical Standards, Securitization Regulation, CRR, Credit Risk, Synthetic Securitization, CMRP, Synthetic Excess Spread, STS Securitization, Basel, EBA

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