Basel
ii in the United States of America
From the
Basel ii
Compliance Professionals Association (BCPA),
the largest association of Basel ii Professionals in the
world
Final Rule, USA: Risk-Based Capital Standards:
Advanced Capital Adequacy Framework —
Basel II
E. Securitization Exposures
This section describes the framework for
calculating risk-based capital requirements for
securitization exposures (the securitization framework).
In
contrast to the framework for wholesale and retail
exposures, the securitization framework does not
permit a bank to rely on its internal
assessments of the risk parameters of a securitization exposure.
For securitization
exposures, which typically are tranched exposures to a pool of underlying exposures, such
assessments would require implicit or explicit estimates of correlations among the losses
on the underlying exposures and estimates of the credit risk-transfering consequences
of tranching.
Such correlation and tranching effects are difficult to estimate and
validate in an objective manner and on a going forward basis.
Instead, the securitization
framework relies principally on two sources of information, where available, to determine
risk-based capital requirements:
(i) an assessment of the securitization
exposure’s credit risk made by a nationally recognized statistical rating organization (NRSRO);
or
(ii) the risk-based capital requirement for the underlying exposures as if the exposures
had not been securitized (along with certain other objective information about the
securitization exposure, such as the size and relative seniority of the exposure).
1. Hierarchy of approaches
The securitization framework contains
three general approaches for determining the risk-based capital requirement for a
securitization exposure: a ratings-based approach (RBA), an internal assessment approach
(IAA), and a supervisory formula approach (SFA).
Consistent with the New Accord and the proposal, under the
final rule a bank generally must apply the following
hierarchy of approaches to determine the risk-based capital requirement for a securitization
exposure.
Gains-on-sale and CEIOs.
Under the proposed rule, a bank would
deduct from tier 1 capital any after-tax gain-on-sale resulting from a
securitization and would deduct from total capital any portion of a CEIO that does not constitute
a gain-on-sale, as described in section 42(a)(1) and (c)
of the proposed rule.
Thus, if
the after-tax gain-on-sale associated with a securitization equaled $100 while the
amount of CEIOs associated with that same securitization equaled $120, the bank
would deduct $100 from tier 1 capital and $20 from total capital ($10 from tier 1 capital and
$10 from tier 2 capital).
Several commenters asserted that the
proposed deductions of gains-on-sale and CEIOs were excessively conservative,
because such deductions are not reflected in an originating bank’s maximum risk-based
capital requirement associated with a single
securitization transaction (described below).
Commenters noted that while securitization does not increase an originating bank’s
overall risk exposure to the securitized assets, in some circumstances the proposal would
result in a securitization transaction increasing an
originating bank’s risk-based capital requirement.
To
address this concern, some commenters suggested deducting CEIOs from
total capital only when the CEIOs constitute a gain-on-sale.
Others urged
adopting the treatment of CEIOs in the general risk-based capital rules.
Under this
treatment, the entire amount of CEIOs beyond a concentration threshold is deducted from
total capital and there is no separate gain-onsale deduction.
The final rule retains the proposed
deduction of gains-on-sale and CEIOs.
These deductions are consistent with the New
Accord, and the agencies believe they are warranted given historical supervisory
concerns with the subjectivity involved in valuations of gains-on-sale and CEIOs.
Furthermore, although the treatments of gains on sale and CEIOs can increase an originating
bank’s risk-based capital requirement following a securitization, the agencies
believe that such anomalies will be rare where a securitization transfers significant
credit risk from the originating bank to third parties.
Receive the New Member
Orientation Newsletters.
Understand Basel II
You will have the
opportunity to learn what members registered before you have
already learned. Understand better the Basel II environment,
projects, careers, challenges and opportunities.
Return
to Table of Contents
Return to
Index
Read more
about our
Certified Basel
ii Professional (CBiiPro)
program
Read more
about our
Certified Pillar 2 Expert
(CP2E)
program
Read more about our
Certified Pillar 3 Expert
(CP3E)
program
Read
more about our
Certified
Stress Testing Expert (CSTE)
program
 | |
