Cadwalader attorneys reviewed the updated version of the Basel Committee on Banking Supervision's "Basel III Document – Revisions to the Securitisation Framework." The update was published on July 11, 2016. The revised framework includes alternative regulatory capital treatment for securitization transactions that meet the criteria for identifying simple, transparent and comparable ("STC") securitizations. Cadwalader attorneys described how the latest revisions will affect future securitization transactions. Specifically, given the significant increases in risk weights for securitization exposures that were brought in under the revised securitization framework, banks are likely to welcome reductions in risk weights for STC securitizations. The attorneys expressed concern over a number of outstanding issues, including the STC criteria's limitations, which likely will be too restrictive to allow the criteria to apply to various securitization transactions:
It would be unfortunate if, despite the work that has gone into the development of the STC and [simple, transparent and standardized] criteria and the recognition that many securitizations are of good quality and likely to perform well, the relevant criteria remain too restrictive and the regulatory benefits are insufficient.
The attorneys also noted that a jurisdiction may determine that the cost of incorporating the STC criteria into the capital framework exceeds the potential benefits, in which case the jurisdiction may retain the option not to incorporate them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
