Featured Product

    ECB Publishes Opinion on Proposals to Amend Securitization Framework

    September 24, 2020

    ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic. In its opinion, ECB welcomes the proposed regulations, which contain targeted amendments to EU securitization framework with the aim of facilitating the use of securitization in EU's recovery. However, ECB makes certain recommendations to enhance the proposed regulations. For the amendments that ECB recommends, specific drafting proposals have been set out in a separate technical working document accompanied by an explanatory text to this effect.

    This opinion has been published in response to the August 2020 request of EU Council to ECB for an opinion on two proposals (referred to as proposed regulations). The first proposal is for a regulation amending Regulation 2017/2402 on a general framework for securitization and creating a specific framework for simple, transparent, and standardized (STS) securitization to help the recovery from the COVID-19 pandemic (the proposed securitization regulation. The second proposal is for a regulation amending the Capital Requirements Regulation (CRR or Regulation 575/2013) regarding adjustments to the securitization framework to support the economic recovery in response to the COVID-19 pandemic (proposed regulation amending the CRR). This second proposed measure involves the removal of regulatory obstacles to the securitization of non-performing exposures (NPEs), to maintain the lending capacity of credit institutions, given that an increase in NPEs caused by COVID-19 can be expected. It is based on the draft standards proposed by BCBS and published for consultation in June 2020.  

    The following are the key highlights of the opinion and recommendations of ECB with respect to the two proposed regulations:

    • ECB welcomes the proposal to standardize the synthetic securitization market through the introduction of STS criteria, which are likely to have a positive steering effect. However, as EBA recognizes in one of its reports, there are limitations in the data and transactions used in this analysis. Nevertheless, ECB recommends that a thorough monitoring of the STS synthetic securitization market is put in place, also highlighting that the preferential risk-weight treatment could be an incentive for credit institutions to increase their reliance on synthetic securitization for capital management.
    • ECB supports the EC proposal to adjust the prudential treatment of NPE securitizations, in line with the recent consultation by BCBS, and recommends that the draft BCBS standards are reflected faithfully, unless there is a strong reason to deviate. In that respect, ECB recommends that the EC proposal should be adjusted, if necessary, to reflect the final BCBS standards. The draft BCBS standards strike a good compromise between risk-sensitivity and simplicity by defining a fixed 100% risk-weight for senior tranches of qualifying NPE securitizations. ECB also proposes to amend Article 249(3) of the CRR to be fully aligned with the BCBS standards, meaning that no minimum rating requirements are imposed on most of the unfunded credit protection providers, while requirements are imposed on unfunded credit protection provided by unregulated private entities in line with the BCBS standards.
    • The definition of NPE securitizations in the proposed securitization regulation deviates from the definition proposed in the draft BCBS standards. However, ECB supports the approach proposed by EC. This is because credit institutions established in EU apply the NPE definition as set out in Article 47a(3) of the CRR for regulatory reporting and risk management purposes; the definition in Article 47a(3) of the CRR is more closely aligned with associated economic risks and bank practice than the parameter W. In addition, the definition of NPEs in Article 47a(3) of the CRR captures unlikely-to-pay exposures, in contrast to the definition proposed in the draft BCBS standards; some EU credit institutions have significant stocks of unlikely-to-pay exposures and would benefit from the proposals.
    • ECB recommends an amendment to the proposed definition of non-refundable purchase price discount (NRPPD). ECB further recommends expressly excluding refundable purchase price discounts, which can undermine the risk transfer as the originator is still exposed to the performance of the NPEs.
    • ECB recommends clarifying, for the avoidance of doubt, that the 100% risk-weight floor for NPE securitizations overrides the so-called "look-through approach" risk-weight cap for senior securitization positions pursuant to Article 267 of the CRR (if the cap results in a risk-weight below 100%), as expressly stated in the draft BCBS standards (see CRE 45.5).


    Related Link: Opinion (PDF)


    Keywords: Europe, EU, Banking, Securities, Securitization Framework, COVID-19, CRR, NPE, Credit Risk, STS Securitization, Regulatory Capital, Basel, BCBS, ECB

    Featured Experts
    Related Articles

    EBA Launches Stress Tests for Banks, Issues Other Updates

    The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.

    January 31, 2023 WebPage Regulatory News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8700