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 Servicer cash advances
A traditional securitization typically
employs a servicing bank that – on a day-today basis – collects principal, interest, and
other payments from the underlying exposures of the securitization and forwards such
payments to the securitization SPE or to investors in the
securitization.
Such
servicing banks often provide to the securitization a
credit facility under which the servicing bank
may advance cash to ensure an uninterrupted flow of payments to investors in the
securitization (including advances made to cover foreclosure costs or other expenses to
facilitate the timely collection of the
underlying exposures).
These servicer cash advance
facilities are securitization exposures.
Under the final rule, as under the
proposed rule, a servicing bank must determine its risk-based capital requirement for any
advances under such a facility using the hierarchy of securitization approaches
described above.
The treatment of the undrawn portion of the facility depends on whether
the facility is an “eligible” servicer cash advance facility.
An eligible servicer
cash advance facility is a servicer cash advance facility in which
(i) the servicer is
entitled to full reimbursement of advances (except that a servicer may be obligated to make non-reimburseable
advances for a particular underlying exposure if any such advance is
limited to an insignificant amount of the outstanding principal balance of that
exposure);
(ii) the servicer’s right to reimbursement is senior in right of payment to all other
claims on the cash flows from the underlying exposures of the securitization; and
(iii)
the servicer has no legal obligation to, and does not, make advances to the securitization
if the servicer concludes the advances are unlikely to be
repaid.
Consistent with the general risk-based capital rules with
respect to residential mortgage servicer cash
advances, a servicing bank is not required to hold
riskbased capital against the undrawn portion of an
eligible servicer cash advance facility.
A bank that provides a non-eligible servicer
cash advance facility must determine its risk based capital requirement for the undrawn
portion of the facility in the same manner as the bank would determine its risk-based
capital requirement for any other undrawn securitization exposure.
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