The European Banking Authority (EBA) launched today a public consultation on its draft Regulatory Technical Standards (RTS) on the determination by originator institutions of the exposure value of synthetic excess spread (SES) in securitisations. The Capital Markets Recovery Package (CMRP) amended the Capital Requirements Regulation (CRR) in several aspects, including a preferential treatment for senior tranches of simple, transparent and standardised (STS) on-balance-sheet securitisations. It also introduced a provision on how to determine the exposure value of SES in synthetic securitisations. The proposals set out in this Consultation Paper will contribute to a more risk sensitive prudential framework in the area of synthetic securitisation. The consultation runs until 14 October 2022.
The CMRP set out a preferential treatment for the senior tranches retained by the originator institutions in STS on-balance-sheet securitisations under certain conditions, based on the qualitative requirements set out for these transactions in the Securitisation Regulation. This reduction on capital requirements was accompanied by a capital charge on SES, due to concerns related to regulatory arbitrage opportunities which may arise.
These arbitrage opportunities can occur when an originator institution provides credit enhancement to the securitisation positions held by protection providers by contractually designating certain amounts to cover losses of the securitised exposures during the life of the transaction. These amounts, which encumber the originator institution’s income statement in a manner similar to an unfunded guarantee were not previously risk weighted.
The Consultation Paper further specify how originator institutions are to determine the exposure value of SES, taking into account the relevant losses expected to be covered by it. In particular, the focus is on the exposure value of SES of future periods, and on the so-called “trapped and use-it-or-lose-it” mechanisms.
Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 14 October 2022.
A public hearing will take place via conference call on 6 September 2022 from 11:00 to 12:00 CET.
These draft RTS have been developed in accordance with Article 248(4) of Regulation (EU) No 575/2013 (the CRR) as amended by the Regulation (EU) 2021/558 of 31 March 2021 (as part of the CMRP), which mandates the EBA to develop draft RTS to specify how originator institutions are to determine the exposure value referred to in Article 248(1)(e) of CRR, taking into account the relevant losses expected to be covered by SES.