GFMA and other associations provide a response to the Basel Committee for Banking Supervision (BSBC) on the BCBS’ second consultative document, Revisions to the Basel Securitisation Framework (published 21 December 2013).The groups welcome the development of a simpler and more straightforward hierarchy of approaches, some reduction of risk weights for higher credit quality exposures, including reduction of the risk weight floor, recognition of credit protection provided by excess spread, preservation of existing flexibility in application of the Internal Ratings-Based Approach (IRBA), preservation of the Internal Assessments Approach (IAA), and requiring one rather than two qualifying credit ratings for application of the External Ratings-Based Approach (ERBA).
However, the groups believe that the proposed capital requirements for securitisation exposures, especially for higher quality exposures and for medium-term and longer-maturity transactions, remain much higher than justified by historical loss incidence in most asset classes, by comparison with other methods of finance or in relation to the capital requirements of the underlying asset pools. These excessive capital requirements will discourage banks from investing in or otherwise acquiring exposure to securitisation transactions. The groups recommend specific changes to certain of the modelling assumptions and parameters used in formulating and calibrating the approaches, as well as changes to the operating conditions for certain approaches and to the risk weight floor and capital cap provisions.
GFMA signed the letter with the follow groups: The Commercial Real Estate Finance Council (CREFC), the Commercial Real Estate Finance Council Europe (CREFC Europe), the Institute of International Finance (IIF), the International Association of Credit Portfolio Managers (IACPM), the International Swaps and Derivatives Association, Inc (ISDA), the Securitisation Forum of Japan (SFJ), and the Structured Finance Industry Group (SFIG).
