Revisions to the Basel Securitisation Framework, consultative document published by the Basel Committee

18 December 2012

The Basel Committee on Banking Supervision has today published a consultative paper entitled Revisions to the Basel Securitisation Framework.

The performance of securitisations and the central role they played during the financial crisis were a key motivation for the Basel Committee to perform a broader review of its securitisation framework for regulatory capital requirements. The Committee's objectives are to make capital requirements more prudent and risk-sensitive; to mitigate mechanistic reliance on external credit ratings; and to reduce current cliff effects in capital requirements.

In July 2009, the Committee introduced enhancements to the Basel II framework to address deficiencies identified during the financial crisis. These measures primarily addressed immediate concerns over resecuritisations, forming part of a set of reforms commonly referred to as "Basel 2.5". The Committee subsequently agreed to conduct a more fundamental review of the securitisation framework, including its reliance on external ratings.

The major elements of the proposed revised framework include the following:

  • Two possible hierarchies that would be significantly different from those employed in the existing securitisation framework. These two proposed hierarchies differ in aspects such as the specific approach to be applied for certain types of exposures; the order and scope of application of approaches; and the flexibility that is given either to jurisdictions or to banks to opt for one approach or the other.
  • Proposed enhancements to the current ratings-based approaches and the supervisory formula approach that are part of the Basel II securitisation framework. The proposal contains a revised ratings-based approach and a modified supervisory formula approach, both of which are intended to create a more risk-sensitive and prudent calibration. To accomplish these objectives, underlying assumptions of the current framework have been revised to reflect lessons learned during the crisis. The enhanced approaches also incorporate additional risk drivers, such as maturity.
  • The introduction of new approaches, such as a simplified supervisory formula approach and different applications of the concentration ratio-based approach that was included in the Basel 2.5 enhancements.

The Committee welcomes feedback on the proposed changes to the securitisation framework. It also plans to soon publish a more complete and technical discussion of the modelling and recalibration work underpinning the proposed revisions to the securitisation framework.

In the coming months, the Committee will conduct a quantitative impact study (QIS) on the proposals. Responses to the public consultation, together with the QIS results, will be considered as the Committee moves forward to revise the securitisation framework.

The Committee is well aware of the trade-off between the risk posed by securitisation and its function as an important tool for bank funding and liquidity. For that reason, it is fully engaged in reviewing the securitisation framework to establish prudent and risk-sensitive capital adequacy rules.

Comments on the proposals should be submitted by Friday 15 March 2013 by e-mail to: baselcommittee@bis.org. Alternatively, comments may be sent by post to: Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a comment contributor specifically requests confidential treatment.