The “New Securitisation Framework” (Reg. EU 2017/2401) has replaced in its entirety the prior securitisation framework for regulatory capital under the CRR (Reg. EU 575/2013, Chapter 5, Title II, Part Three). The groundwork for the revised framework has been laid down by the Basel Committee on Banking Supervision (BCBS) in its “Revisions to the securitisation framework” publication.
With regard to its scope, the New Securitisation Framework applies to all banks subject to minimum capital requirements for securitisation positions, whether as originators, sponsors or investors, as well as in the role of transaction parties that assume credit risk on securitised exposures (e.g., as credit support or swap providers).
The ultimate objective of the New Securitisation Framework is to “address the shortcomings which became apparent during the financial crisis, namely mechanistic reliance of external ratings, excessively low risk weights for highly-rated securitisation tranches and, conversely, excessively high risk weights for low-rated tranches, and low risk sensitivity.” In this context, the New Securitisation Framework has defined a revised and simplified hierarchy of approaches for the calculation of capital requirements, in the following order (subject to a few nuances):
- The Securitisation Internal Ratings Based Approach (SEC-IRBA).
- The Securitisation Standardised Approach (SEC-SA).
- The Securitisation External Ratings Based Approach (SEC-ERBA).
Additional notable aspects of the New Securitisation Framework include caps on capital charges (driven by the capital requirements that would be applied to the underlying exposures had they not been securitised), a “look-through” treatment for senior securitisation positions, and the introduction of a favourable capital treatment for STS securitisations.