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Home Archive for category "Securitizations"
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Volcker TruPS CDO Interim Final Rule: The Bottom Line

Here is the bottom line for the Volcker TruPS CDOs interim final rule issued by the U.S. regulators yesterday.

No Relief for CLOs:  The rule does not help CLOs at all.

TruPS CDOs:  For TRuPS CDOs we believe it will be very helpful.

Specifically, the interim final rule permits any banking entity, large or small, to retain an interest in, or to act as sponsor (including as trustee) of, an issuer that is backed by TruPS so long as:

  • The TruPS CDO issuer was established before May 19, 2010;
  • The banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral; and
  • The banking entity’s interest in the vehicle was acquired on or before December 10, 2013 (unless acquired pursuant to an M&A).
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Basel Committee Issues Second Proposal on Risk-Based Capital Requirements for Securitization

Today, the Basel Committee issued a second proposal to revise the risk-based capital requirements for securitization exposures.  In developing the proposal, the Basel Committee took into account comments received on its first proposal and the results of a quantitative impact study (QIS).

Compared with the Basel Committee’s first proposal, the major changes in the second proposal relate to the hierarchy of approaches for securitization exposures and the calibration of capital requirements.

Proposed hierarchy of approaches.  The Basel Committee proposes the following hierarchy of approaches for determining the capital requirement for securitization exposures:

  1. 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 internal ratings based approach capital charge for the underlying pool of exposures, including expected losses.
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Federal Reserve Makes Technical Revisions to Market Risk Capital Rule and U.S. Basel III

Today, the Federal Reserve issued a final rule that makes technical changes to the market risk capital rule to align it with the U.S. Basel III capital framework adopted by the Federal Reserve earlier this year.

The market risk capital rule is used by banking organizations with significant trading activities to calculate regulatory capital requirements for market risk.  The technical changes to the rule reflect modifications by the Organization for Economic Cooperation and Development regarding country risk classifications.  The revisions also clarify the criteria for determining whether underlying assets are delinquent for certain securitization positions in the trading book.  …  Read More

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Advanced Approaches Capital Rules: Federal Reserve Issues Guidance for Implementing the Supervisory Formula Approach for Securitization Exposures

The Federal Reserve’s Basel Coordination Committee has issued guidance regarding supervisory expectations for determining the capital requirements on the underlying exposures (KIRB) input to the Supervisory Formula Approach (SFA) for securitization exposures and the flexibility afforded to advanced approaches banking organizations when dealing with data limitations.  Federal Reserve and OCC staff worked together on the development of this guidance.

Background:  The advanced approaches capital rules, originally adopted by the U.S. banking agencies in 2007, apply to the largest and most internationally active U.S.…  Read More

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Advanced Approaches Capital Rules: Federal Reserve Issues Guidance for Excluding Certain Exposures to Investment Firms from the Definition of “Traditional Securitization”

The Federal Reserve’s Basel Coordination Committee has issued guidance to advanced approaches banking organizations with respect to excluding certain exposures to investment firms from the definition of “traditional securitization” in the advanced approaches capital rules.  This blog post focuses on the exclusion for investment firms that exercise unfettered control over their underlying exposures.

Background:  The advanced approaches capital rules, originally adopted by the U.S. banking agencies in 2007, apply to the largest and most internationally active U.S. banking organizations (advanced approaches banking organizations) and implement the Basel capital framework’s internal ratings-based approach for calculating risk-weighted assets for credit risk and advanced measurement approaches for calculating risk-weighted assets for operational risk. …  Read More

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