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    EBA Publishes Final Regulatory Standards on STS Securitizations

    September 20, 2022

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple, transparent, and standardized (STS) on-balance-sheet securitizations that feature non-sequential amortization.

    The published regulatory standards have been developed in accordance with Article 26c(5) of the amended Securitization Regulation (Regulation 2021/557). The amended Securitization Regulation sets out that sequential amortization shall be applied to all tranches of STS on-balance-sheet securitizations. However, as a derogation, STS on-balance-sheet securitization might feature non-sequential amortization to avoid disproportionate costs of protection, as long as some minimum performance-related triggers determine the application of sequential amortization. This will ensure that tranches providing credit protection have not already been amortized when significant losses occur at the end of the transaction. The draft regulatory technical standards specify the minimum backward and forward-looking triggers and establish criteria to be fulfilled by the parties involved in the securitization to set the level of the triggers.

    In case of the minimum backward-looking triggers, the parties involved in the securitization shall test the effectiveness of the trigger in a back-loaded loss distribution scenario, taking into account the losses expected over the maturity of the transaction at inception. The draft regulatory technical standards also contain transitional provisions in respect of the STS on-balance-sheet securitizations, which include triggers related to the performance of the underlying exposures in accordance with Article 26c(5) of the Securitization Regulation. The final draft regulatory standards will be submitted to the European Commission for adoption. Following the submission, the standards will be subject to scrutiny by the European Parliament and the Council and the regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

     

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    Keywords: Europe, EU, Banking, STS Securitization, Securitization Regulation, Regulatory Technical Standards, Basel, EBA

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