Featured Product

    EBA Consults on Guidelines for WAM Determinations for Securitizations

    July 31, 2019

    EBA is consulting on the draft guidelines on determination of weighted average maturity (WAM) of the contractual payments due under the tranche of a securitization transaction, as per Article 257(1) (a) of the Capital Requirements Regulation (CRR). These draft guidelines aim at ensuring that the methodology applicable for the determination of the WAM for regulatory purposes is sufficiently harmonized to increase consistency and comparability in the own funds held by institutions. The consultation period ends on October 31, 2019.

    CRR mandates EBA to monitor the range of practices in this area, particularly with regard to the measurement of the maturity of a tranche as the WAM of the contractual payments due under the tranche, and issue these guidelines by December 31, 2019. Overall, the draft guidelines cover the following key areas:

    • Meaning of contractual payments due under the tranche
    • Data and information requirements
    • Methodologies for determining the contractual payments of the securitized exposures and of the tranches, both for traditional and synthetic securitization
    • Implementation and use of the WAM model

    The revised CRR framework for securitization introduced the maturity of the tranche as an additional risk factor to take into account when calculating the capital requirement of securitization exposures. Two alternative approaches could be applied when determining the maturity of a tranche: the WAM of the contractual payments due under the tranche or the final legal maturity of the tranche. These draft guidelines provide the guiding principles for institutions opting for the WAM approach, instead of the final legal maturity approach. This is done to calculate the risk weighted exposure amounts of a securitization position via the methods that use the maturity of the tranche as a risk factor, namely the Internal Ratings Based Approach for calculating risk-weighted exposure amounts of a securitization position (SEC-IRBA) and external Ratings Based Approach for calculating risk-weighted exposure amounts of a securitization position (SEC-ERBA). 

    In case of traditional securitizations, these guidelines set out that the contractual payments due under the tranche should be understood to mean the combination of the contractual payments of the underlying exposures payable to the securitization special purpose vehicle (SSPE) and the contractual payments payable by the SSPE to the tranche holders. In case of synthetic securitizations, these guidelines set out that the contractual payments due under the tranche should be understood to mean (both in the perspective of the originator and in the perspective of the protection provider calculating the WAM) the contractual payments of premia payable by the originator to the protection provider. The guidelines also contain provisions on the asset model applicable to the pool of securitized exposures to determine their outstanding balance throughout the life of the protection and the corresponding size of the protected tranches, which is the base for the calculation of those premia that are contingent on that size. Finally, these guidelines set out the requirements on the data on the underlying pool of assets and on the securitization transaction for the institutions to be able to calculate the WAM of a tranche; the use of third-party data and model providers; and further requirements on the implementation and use of the WAM approach.

     

    Related Links

    Comment Due Date: October 31, 2019

    Keywords: Europe, EU, Banking, Securitization, SEC-ERBA, SEC IRBA, CRR, Weighted Average Maturity, Securitization Tranches, Basel III, EBA

    Featured Experts
    Related Articles
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Examines Remuneration Data and Use of Large Exposure Exemptions

    The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).

    July 22, 2022 WebPage Regulatory News
    News

    BoE Issues Update on Ongoing Data Transformation Program

    The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.

    July 21, 2022 WebPage Regulatory News
    News

    EBA Issues Draft Methodology and Templates for 2023 Stress Tests

    The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.

    July 21, 2022 WebPage Regulatory News
    News

    EBA Issues SREP Guidelines and Standards for Investment Firms

    The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.

    July 21, 2022 WebPage Regulatory News
    News

    BoE and PRA Publish Regulatory Updates for Financial Sector Entities

    The Prudential Regulatory Authority (PRA) proposed expectations, via CP8/22, in respect of changes to the instruments or claims that comprise unvested deferred sums awarded to material risk-takers as part of their variable pay.

    July 19, 2022 WebPage Regulatory News
    News

    EIOPA Issues Taxonomy for Solvency II Reporting, Issues Other Updates

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.7.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 16, 2022 WebPage Regulatory News
    News

    OSFI Updates Address BCAR Reporting, Basel Reforms, and Cyber Risk

    The Office of the Superintendent of Financial Institutions (OSFI) updated the 2023 Basel Capital Adequacy Reporting (BCAR) manual as well as the 2023 BCAR return.

    July 15, 2022 WebPage Regulatory News
    News

    FSB Report Outlines Progress on Climate Risk Roadmap

    In a letter to the G20 Leaders, ahead of the July 2022 meeting, the Financial Stability Board (FSB) Chair set out an overview of the key work done by FSB.

    July 14, 2022 WebPage Regulatory News
    News

    SRB Issues Resolvability Assessment and Bail-in Implementation Guide

    The Single Resolution Board (SRB) published its resolvability assessment and "heat map" for 2021, updated the operational guidance on implementation of bail-in tool, and issued the annual report for 2021.

    July 14, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8400