Single Rulebook Q&A

Question ID: 2017_3610
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Securitisation and Covered Bonds
Article: 252
Paragraph:
Subparagraph:
Article/Paragraph : NA
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Type of submitter: Credit institution
Subject matter : CAP for synthetic securitisations of originator institutions in STD based on Article 252
Question:

In case of originator institutions using the standardised approach (STD) having synthetic securitisations, is the CAP applied to all the securitised positions or only on the ones where the risk is retained?

Background on the question:
According to Article 252, for an originator institution or sponsor institution, the risk-weighted exposure amounts calculated in respect of its securitisation positions in any one securitisation may be limited to the risk-weighted exposure amounts which would currently be calculated for the securitised exposures had they not been securitised subject to the presumed application of a 150 % risk weight for all items in default and all items associated with particularly high risk. It is not clear how the RWA pre securitisation shall be allocated. For example:
 
Securitised exposures/portfolio:
EAD_pre_CCF = 100, EAD = 50, RWA pre sec = 25 and hence avg RW (in line with Article 253) = 50%
 
Securitised positions:
Junior (FLP): EAD = 20, RWA = 0 (guarantee cap from an international organisation with RW = 0%, according to Article 118)
 
Senior: EAD = 80, RWA = ? Concentration ratio (Article 253(2)) = 1 in case of synthetic transaction with SRT (Significant Risk Transfer), where the risk on FLP is transferred to an international organisation (RW = 0%), which is the final RWA of the senior tranche? The avg. RW is applied to the senior tranche: RWA = 80 * 50% = 40 which is higher than RWA pre sec = 25 (CAP). Is the final RW the one in case A or in case B below?
 
Case A: RWA senior = 25, based on the full allocation to the senior tranche of the RWA pre securitisation
 
Case B: RWA senior = 25 * 80% = 20, based on the fact that RWA junior is 5 but then a PD shift is applied based on the guarantor.
Date of submission: 01/12/2017
Published as Final Q&A: 25/05/2018
EBA answer:

Article 252 of Regulation (EU) No 575/2013 (CRR) states that for an originator institution or sponsor institution, the risk weighted exposure amounts (RWAs) calculated in respect of its securitisation positions in any one securitisation may be limited to the risk-weighted exposure amounts which would currently be calculated for the securitised exposures had they not been securitised, subject to the presumed application of a 150% risk weight to the following:

(a) all items currently in default;
(b) all items associated with particularly high risk in accordance with Article 128 amongst the securitised exposures.
 
In order to apply the cap of Article 252 CRR the institution, which is the originator or sponsor of the securitised exposures, under the standardised approach will first calculate the RWAs of the exposures as if they had not been securitised. Secondly, the institution will calculate the RWA in respect of all tranches in the securitisation including tranches subject to credit risk mitigation. Finally if the sum of the RWA in respect of all tranches in the securitisation including tranches subject to credit risk mitigation is greater than the RWA of the underlying exposures calculated as stated above, the institution will apply the latter.
 
In the numeric example above, the cap in Article 252 CRR applies since the RWAs of the synthetic securitisation positions after credit risk mitigation are higher than the RWAs of the securitised exposures (which is 25)., Assuming that all the requirements under Article 244(5) and 244 (1) are met, and that the risk of the first loss tranche has been mitigated by an international organisation with RW=0% via a guarantee, the RWA of the securitisation positions are the sum of the RWA of the senior tranche and the RWA of the junior tranche. According to Article 253, the RW of the senior tranche would thus be 50% and its RWA 40 (50% x 80). Therefore, in such a case the RWA of the securitisation positions would be limited to 25 = MIN [80 x 50% + 0%; 25].
Status: Final Q&A
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