EACB appreciates the work of BCBS on the securitization framework and the opportunity to express its views on the resulting consultation paper and the proposed changes.
We would like to remind that co-operative banks’ business model is not based on selling commoditised credits (OTD, “originate to distribute”) but, with the aim of responding to the needs of their members/customers, it is based on a more traditional “intermediation role” along the OTH (“originate to hold”) model. Nevertheless, on behalf of a few co-operative banks, EACB would like to put forward a some concerns relating the proposed methodology:
- The proposed risk weights for securitization positions are a multiple as compared to the case if the portfolio were held directly (risk weights in RRBA are excessively high, in particular for investment grade ratings). The proposed weighting does not seem to reflect the actual risk but imposes excessive capital charges for the securitisation positions.
- Cliff effects are not removed, especially for highly rated assets and especially in the case of alternative B.
- The credit enhancements do not seem to be taken into consideration.
- The assumption that securitization positions performed poorly does not hold for EU securitization market, which actually performed in line with expectations for most asset classes and geographic areas, even during the crisis.
- Some regulatory changes already address the shortcomings of securitization: risk retention rules, Basel III liquidity requirements, regulation aimed at improving the supervision, control and performance of rating agencies
- The alternative B does not seem to be completely specified and would impose significant problems. W favour alternative A.
- The IAA under alternative A should be strengthened by: bringing it at the same level as MSFA, extension of the scope of IAA (to apply to other securitization positions than ABCP), recalibration of risk weights in IAA to be more representative of the risk they refer to. We are also critical of the right of the jurisdiction to choose in level 2 of alternative A of the hierarchy. The institutions should rather choose depending on the available information between RRBA or SSFA.
Thus, the hierarchy should rather be:
- appropriately calibrated MSFA or IAA (at institution’s choice)
- appropriately calibrated SSFA or RRBA (at institution’s choice)
- There should be a grandfathering provision for existing securitization positions – the new rules should only be applied for the new securitization positions going forward.
More details about our main concerns can be found in the responses to the specific questions. For the full position paper please download the PDF