BIS updates standard for the regulatory capital treatment of securitisation exposures

The Basel Committee on Banking Supervision today published an updated standard for the regulatory capital treatment of securitisation exposures. By including the regulatory capital treatment for “simple, transparent and comparable” (STC) securitisation, this standard amends the Committee’s 2014 capital standards for securitisation.

The capital treatment for STC securitisation builds on the 2015 STC criteria published by the Basel Committee and the International Organization of Securities Commissions. The standard published today sets out additional criteria for differentiating the capital treatment of STC securitisation from that of other securitisation transactions. The additional criteria, for example, exclude transactions in which the standardised risk weights for the underlying assets exceed certain levels. This ensures that securitisation with higher-risk underlying exposures do not qualify for the same capital treatment as STC-compliant transactions.

Compliance with the expanded set of STC criteria should provide additional confidence in the performance of the transactions, and thereby warrants a modest reduction in minimum capital requirements for STC securitisation. The Committee consulted in November 2015 on a proposed treatment of STC securitisation. Compared to the consultative version, the final standard has scaled down the risk weights for STC securitisation exposures, and has reduced the risk weight floor for senior exposures from 15% to 10%.

The Committee is currently reviewing similar issues related to short-term STC securitisation. It expects to consult on criteria and the regulatory capital treatment of such exposures around year-end.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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