Featured Product

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    November 26, 2020

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks. In contrast to the proposal on the capital treatment of non-performing loan securitizations, which was published in June 2020, the final rule permits banks to apply the external ratings-based approach to non-performing loan securitization exposures, without the 100% risk-weight floor. In addition, the final rule includes discounts on tranche sales in the definition of discount incurred by the originating bank that factors in the capital requirements. With this, BCBS is amending the securitization standard to address a gap in the existing regulatory framework by setting out prudent and risk-sensitive capital requirements for non-performing loan securitizations. The technical amendment is to be implemented by, no later than, January 01, 2023.

    BCBS had started developing the technical amendment before the onset of the COVID-19 pandemic. However, the recent observations in which the securitized portfolio consists mostly of non-performing loans have shed light on the potential risk-weight miscalibration. To correct this situation, BCBS has agreed to add the following elements to the securitization:

    • An explicit definition of securitizations of non-performing loans
    • Removal of the option to use foundation internal risk-based parameters as inputs for the internal ratings-based approach (SEC-IRBA) for all securitizations of NPLs
    • Introduction of a 100% risk-weight floor for exposures to securitizations of non-performing loans that are risk-weighted under the SEC-IRBA or the standardized approach (SEC-SA).
    • Risk-weight of 100% under SEC-IRBA or SEC-SA, for the senior tranches of securitizations of non-performing loans where the non-refundable purchase price discount is equal to, or greater than, 50% of the securitized portfolio

    All other provisions of the current securitization standard, including the use of external ratings-based approach (SEC-ERBA) and the possibility of capping the capital requirement for exposures from the same transaction, will also apply to the securitizations of non-performing loans. This technical amendment does not change any rule related to the securitization of performing loans.

     

    Related Links

    Effective Date: January 01, 2023 

    Keywords: International, Banking, Credit Risk, Securitization Framework, Regulatory Capital, Basel, NPLs, SEC-IRBA, Standardized Approach, IRB Approach, BCBS

    Featured Experts
    Related Articles
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    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 Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    News

    APRA Consults on Prudential Standard for Operational Risk

    The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.

    July 28, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8422