Revisions to the Basel Securitisation Framework issued by the Basel Committee

19 December 2013

Press release

The Basel Committee on Banking Supervision has today issued a second consultative paper on revisions to the Basel securitisation framework. The paper comprises a detailed set of proposals, including draft standards text, for a comprehensive revision of the treatment of securitisation within the risk-based capital framework. This initiative forms part of the Committee's broader agenda to reform regulatory standards for banks in response to lessons learned from the global financial crisis.

In developing these proposals, the Committee has carefully taken into account the comments received on the first consultative document, as well as the results of the related quantitative impact study (QIS). Revisions have also been informed by the Committee's desire to strike an appropriate balance between risk sensitivity, simplicity and comparability.

Relative to the first consultation, the major changes in this consultative document apply to the hierarchy of approaches, and the calibration of capital requirements.

For the hierarchy, the Committee has proposed a simple framework akin to that used for credit risk:

  • Where banks have the capacity and supervisory approval to do so, they may use an internal ratings-based approach to determine the capital requirement based on the risk of the underlying pool of exposures, including expected losses. The internal ratings-based approach is risk-sensitive, yet relatively easy to use and supervise.
  • If this internal ratings-based approach cannot be used for a particular securitisation exposure, an external ratings-based approach may be used (assuming that the use of ratings is permitted within the relevant jurisdiction). Unlike the existing securitisation approach, however, capital requirements need not be based on external ratings if they are available; furthermore, some jurisdictions may not wish to use this approach at all.
  • Finally, if neither of these approaches can be used, a standardised approach would be applied. This is based on the underlying capital requirement that would apply under the standardised approach for credit risk, and other risk drivers.

In reviewing the calibration of the approaches, theCommittee has revised some of the modelling assumptions behind the original calibration proposed in the first consultative document. These changes result in greater consistency with the underlying credit risk framework. They would lead to meaningful reductions in capital requirements vis-à-vis the initial proposals, yet would remain more stringent than under the existing framework. The Committee also proposes to set a 15% risk-weight floor for all approaches, instead of the 20% floor originally proposed.

Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank, said: "The revisions to the Committee's proposals reflect the feedback we have received. A simpler set of approaches, more aligned to the underlying capital framework, and a revised calibration should serve the Committee's goal of ensuring that securitisation exposures are supported by an appropriate amount of capital."

The Committee encourages a constructive dialogue during the consultation period, and invites market participants to contribute to the forthcoming Quantitative Impact Study (QIS), which will include the collection of loan-level data for securitisations to allow the Committee to further assess the impact of the proposed calibration revisions discussed in this consultative paper.

The Committee welcomes comments on all aspects of this consultative document and the proposed standards text. Comments on the proposals should be uploaded by Friday 21 March 2014. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments will be published on the website of the Bank for International Settlements unless a respondent specifically requests confidential treatment.