EBA Consults on Guidelines for WAM Determinations for Securitizations
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.
Comment Due Date: October 31, 2019
Keywords: Europe, EU, Banking, Securitization, SEC-ERBA, SEC IRBA, CRR, Weighted Average Maturity, Securitization Tranches, Basel III, EBA
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous ArticleAPRA Proposes Stronger Remuneration Requirements in Australia
Next ArticleDNB Publishes Insurance Newsletter for November 2019
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023