From the Regulators

The revised standard sets out additional criteria for differentiating the capital treatment of “simple, transparent and comparable” securitizations from other sorts of transactions

By James Langton |

Global banking regulators have revised the regulatory capital rules for certain types of securitization transactions, which reduces the capital required for more straightforward, lower-risk deals.

The Basel Committee on Banking Supervision on Monday published an updated standard for securitizations that include so-called "simple, transparent and comparable" (STC) securitizations, which builds on criteria published by the Basel Committee and the International Organization of Securities Commissions (IOSCO) in 2015.

The revised standard published sets out additional criteria for differentiating the capital treatment of STC securitizations from other sorts of transactions, and reduces the minimum capital requirements for STC transactions.

"The criteria help mitigate uncertainty related to asset risk, structural risk, governance, and operational risk," the committee says in the revised standard, noting that increasing confidence in the performance of STC transactions may also justify a reduction in capital requirements for these transactions.

"All other things being equal, a securitization with lower structural risk needs a lower capital surcharge than a securitization with higher structural risk; and a securitization with less risky underlying assets requires a lower capital surcharge than a securitization with riskier underlying assets," it says.

The committee consulted on a proposed treatment of STC securitizations in 2015. As a result of that consultation, the final standard has reduced the risk weights for STC exposures, and it has reduced the risk weight floor for senior exposures from 15% to 10%.

The regulators note that they are also currently reviewing similar issues related to short-term STC securitizations, and expect to consult on criteria and the regulatory capital treatment of these exposures by the end of the year. These measures are slated to take effect in January 2018.